www.rfintelligence.com

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Contacts

Industry Policy Australian Payments Clearing Association Limited ABN 12 055 136 519 Level 6, 14 Martin Place, Sydney NSW 2000 Telephone +61 2 9216 4888 www.apca.com.au

RFi Consulting

Lance Blockley: lblockley@rfintelligence.com

Ryan Yuzon: ryuzon@rfintelligence.com

Published July 2014

Copyright © 2014 RFi Consulting

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TABLE OF CONTENTS

1. Executive Overview .............................................................................................................................................. 2

2. Study Objectives & Scope .................................................................................................................................... 8 2.1. Study objectives ............................................................................................................................................ 8 2.2. Study scope .................................................................................................................................................. 8 2.3. Study approach ............................................................................................................................................. 8

3. Global Trends in Cash Usage............................................................................................................................. 10 3.1. Historical Context ........................................................................................................................................ 10 3.2. The move to cards, especially contactless for low value ............................................................................ 16 3.3. Increase in online shopping and online bill payment .................................................................................. 18 3.4. Move to real-time payments ....................................................................................................................... 19 3.5. Movement toward a “less-cash” society ..................................................................................................... 20

4. Cash Trends in Australia .................................................................................................................................... 21 4.1. A highly carded population ......................................................................................................................... 33 4.2. Australian contactless usage is the strongest in the world ......................................................................... 35 4.3. The potential for mobile payments to displace cash .................................................................................. 37

5. Summary Observations – Australian Consumers ............................................................................................... 41 5.1. Results from the consumer survey ............................................................................................................. 41

6. Summary Observations – Australian Merchants/Small Businesses ................................................................... 47 6.1. Large Retailers ........................................................................................................................................... 47 6.2. Small Retailers ............................................................................................................................................ 51

7. Summary Observations – Financial Institutions and Regulators ........................................................................ 53 7.1. Royal Australian Mint .................................................................................................................................. 53 7.2. Reserve Bank of Australia .......................................................................................................................... 56 7.3. Payment Card Schemes ............................................................................................................................. 59 7.4. Financial Institutions ................................................................................................................................... 61 7.5. APCA survey of Financial Institutions ......................................................................................................... 63 7.6. Overall......................................................................................................................................................... 67

8. The Future of Cash ............................................................................................................................................. 68 8.1. The “Cash Conundrum” .............................................................................................................................. 80

9. Appendix ............................................................................................................................................................. 88 9.1. Habits .......................................................................................................................................................... 88 9.2. Sweden Case Study ................................................................................................................................... 91

10. Technical Appendix ............................................................................................................................................ 93

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Introductory Note The Australian Payments Clearing Association (APCA) is the Australian payments industry's

principal self-regulatory body. APCA's role is to manage and develop regulations, procedures,

policies, and standards governing payments clearing and settlement within Australia. It

currently coordinates and manages five payments clearing systems covering cheques, direct

debit and credit payments, EFTPOS and ATM, high value and bulk cash.

RFi Consulting is an independent strategy consulting firm, focused exclusively on the payments

industry. Through our affiliation with the RFi Group of companies, we have access to a wealth

of accumulated data and knowledge revolving around the usage of electronic and paper

payment types, as well as insight into current attitudes and future trends. This knowledge,

combined with our strategic advisory capability, enables RFi Consulting to provide actionable

insights to our clients across Australia and Asia Pacific.

APCA monitors payment trends and is aware of the rise of electronic payments globally at the

expense of paper instruments. This trend is also seen in Australia, for example with both credit

and debit card transactions experiencing growth, with the latter experiencing significant growth

in recent times.

APCA engaged RFi Consulting to conduct an independent study of the current level of cash

usage in Australia, as well as projected future trends. This study took place between June and

December 2013. RFi Consulting interviewed consumers, merchants, small businesses,

government organisations, and other stakeholders in the payments value chain in Australia,

gathered information via desk research and online surveys, undertook analysis of the collected

information, and summarised its findings in this report.

RFi Consulting would like to thank the many organisations and individuals who provided

information and perspectives that collectively form the foundation for this report.

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1. Executive Overview

This report on the future of cash in Australia has been developed by RFi Consulting (RFi)

at the request of APCA, in order to assist APCA and its member organisations in the

planning of cash handling requirements and infrastructure over the medium term. In

addition, APCA committed in its "Bridge to the Digital Economy" Report to undertake

preliminary research on the use of cash in Australia.

The report provides an overview on the history of cash, what has been happening in a

number of overseas markets and recent trends in Australia. RFi has used a wide range of

inputs to this study in order to build a model of future payment transaction volumes and

values across all payment methods, and put forth what we believe is a plausible vision of

the future of cash in Australia.

For the purposes of this study, “cash” includes both paper banknotes and coins. Cash is

used both as a means of making a payment transaction and as a store of value. There is

about $60 billion of cash issued in Australia, with over 90% of the value residing in

banknotes. Cash has been under “attack” from a variety of electronic forms of payment for

many years, but there are reasons to believe that its use has now reached a “tipping

point.”

On a per capita, CPI adjusted basis, ATM withdrawals have been trending down since

2008, and in absolute dollar terms ATM withdrawals began to decline in 2012, just as

open-loop contactless card payments “took off” in earnest.

Indeed, as the total number of payment transactions in the Australian economy has grown,

cash’s share of total payment transactions has declined from an estimated 73% in 2005 to

59% in 2013 — a loss of just under 2% of “market share” per year. We are forecasting this

rate of share decline to accelerate over the next few years, with cash’s share of total

payment transactions going from 59% in 2013 to 43% in 2018 — a loss of just over 3% of

“market share” per year.

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Figure 1.1: Total Payment Transaction Volume and Value by Method in Australia

We foresee cash usage undergoing an “S-bend” decline in both value and volume of

transactions over the next five years. The acceleration in the displacement of cash is

faster (from 2013 to 2018) when looked at in actual transaction numbers, which previously

held relatively constant between 2005 and 2013.

Table 1.2: Number of Cash Transactions by Year Source: RBA Payments Statistics

Year Number of Cash Transactions (m) % Change

2005 12,329 2013 11,700 5% decline over eight years 2018 9,368 20% decline over five years

The displacement of cash (and cheques) by electronic forms of payment is quite clear

when viewed on a percentage basis in relation to the total number of payment

transactions.

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Figure 1.3: Percentage of payment transactions by payment method 2005-2018

But the advantages of cash mean that it will remain in use in specific areas, including: the

black economy; illicit activities (drugs, guns, etc.); older generation & ethnic groups (both

as a store of value and for transactions); and some types of merchants.

Table 1.4: Disadvantages and Advantages of Cash

Disadvantages of Cash Advantages of Cash Bulky Control (budgetary: only spend what you

have) Unhygienic Certainty of acceptance You have to go and get it No transaction failure Unsafe to carry in large quantities Easy distribution (e.g., easy to pay staff) Not always fast and convenient Instant transfer of value Can’t track where or what you’ve spent

Anonymity, not traceable

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On the basis that cash could have held its same 2013 percentage of transactions through

to 2018, our forecast indicates that $56,551 million in “potential” cash transactions will be

displaced by electronic forms of payment between 2013 and 2018. Our model has

forecast that this cash displacement will be comprised as shown in the charts below.

Figure 1.5: Cumulative Cash Displacement Breakdown (by Dollars), 2014-2018

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Figure 1.6: Cumulative Cash Displacement Breakdown (by Percentage), 2014-2018

We forecast that the majority (68%) of cash displacement between 2013 and 2018 will

occur due to card-based payments, encompassing:

• A continuation of the general migration of cash to cards (a long, historic trend);

• The growth in contactless card transactions, both in EFTPOS and Scheme cards;

• The introduction of mPOS devices, which will allow small/infrequent merchants to

accept card payments instead of cash.

The cash conundrum in Australia is that, just as the amount of cash being used in

everyday transactions is going down, the amount of cash (coins and banknotes) on issue

is increasing. Such that there are eleven $100 denomination banknotes on issue for each

man, woman and child in Australia, whereas the majority of the public do not use or hold

this denomination (and very few ATMs dispense it); further, for each man, woman and

child there are almost $2,500 of banknotes on issue, whereas the majority of the public

only hold a few hundred dollars’ worth of banknotes.

If there is around $60 billion of Australian cash on issue, where is it located? We have

attempted to estimate where the issued Australian cash is being held, but put this forward

more as an “educated guess.”

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Table 1.7: Cash Inventory Location Source: RFi Estimates

Location Billion $ Australian Bank Branch Holdings 1.8 Australian ATM Network Holdings 2.0 Australian Cash Depots 2.2 Foreign Exchange Speculation in Australia 0.1 Overseas Bank & FX Trade Physical Holdings 7.5 Retail Trade Holdings 1.0 Non-Retail Trade Holdings 2.0 Consumer Holdings for Normal Expenditure 7.2 Gambling 1.0 Black Economy (Legitimate) Activities 3.0 Illicit Activities 6.0 Coin “Hoarding” / Saving 1.2 Domestic “Hoarding” of Banknotes 10.0 Offshore “Hoarding” of Banknotes 15.0

Total 60.0

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2. Study Objectives & Scope

2.1. Study objectives

The primary objectives of the study include providing a view on the current usage of cash

in Australia, as well as projecting future trends for the growth of (or decline in) cash usage

for domestic payments. The findings rendered in this study are important inputs to APCA

as it plans for future resource allocation in managing its five core payments clearing

systems, including: cheques, direct debit and credit payments, EFTPOS and ATM, high

value payments, and bulk cash. This report also delivers on APCA’s commitment to

undertake preliminary research on the use of cash in Australia, as referenced in its “Bridge

to the Digital Economy” report.

2.2. Study scope

The scope of the study includes all electronic and payment forms used for domestic

payments in Australia. International examples are included to provide context and to

illustrate global best practices in payments. Consumer-initiated payments (e.g., person-to-

person, consumer-to-government, and consumer-to-business) are included, as are

business- and government-initiated payments (e.g., business-to-business, business-to-

consumer, business-to-government, etc.). For the purposes of this study, “cash” includes

both paper banknotes and coins.

2.3. Study approach

RFi Consulting has endeavoured to include a comprehensive set of sources, both primary

and secondary, in order to fully inform our view of the current and future uses of cash.

Specifically, over the course of the study, we have undertaken in-depth interviews (with

industry stakeholders from the banking, merchant, and regulator communities), fielded

internet-based consumer surveys amongst more than 2,000 respondents, conducted

secondary research on current usage trends in Australia and abroad, and created a

financial model to help forecast the future trajectory of cash transactions.

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Our model projected out 10 years into the future, but in the main body of the report we

have only included forecasts to 2018, as we believe that the accuracy of predictions

beyond a 5 year horizon is less robust.

As with any prediction of future events, there is inherent uncertainty in our findings.

However, given the wide range of comprehensive inputs to this study, we believe that with

this work we have put forth a plausible vision of the future of cash in Australia.

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3. Global Trends in Cash Usage

3.1. Historical Context

Primitive Currency1

Within primitive cultures, a strange diversity of objects commonly termed “money” or

“currency” have been found. These are of two main kinds, one comprising articles of

practical use, the other those of which the primary purpose is ornament. The rock salt of

Ethiopia, the hoes of the Dinka and Shilluk of the upper Nile, the iron and cloth of central

and west Africa, the brilliant red feather bands of Santa Cruz, the dentalium shell strings of

California and British Columbia, the wampum of the eastern American tribes, the tridacna-

shell chamlets and large stone axe

blades of eastern Papua New Guinea,

the sperm-whale teeth of Fiji and the feI

or “millstone money” of the Caroline

Islands have all been termed “money.”

Well known among “native money” are

the strings of shell disks characteristic of

the Melanesian islands, such as the

diwara of New Britain, the rongo of

Malaita or the sapisapi of east Papua New Guinea. Much work was involved in their

manufacture, and their value varied according to their length and colour. Red discs being

worth more than white, the shell from which they are obtained being more rare. These

strings, whether in coils or made up into necklaces, formed most important items of wealth,

and passed from hand to hand in settlement of social obligations.

But according to precise terminology, such objects cannot be correctly described as

currency or money. In any economic system, however primitive, an article can only be

regarded as true money when it acts as a definite and common medium of exchange, in a

1 Primarily based on Encyclopaedia Britannica

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convenient stepping-stone in obtaining one type of goods for another. Moreover, in so

doing it serves as a measure of value, hence the worth of all other articles can be

expressed in terms of itself. Again, it is a standard of value with reference to past or future

payments, while as a store of value it allows wealth to be condensed and held in reserve.

Strings of shell disks and similar articles are certainly a form of condensed wealth, and act

as a store of value. But they do not consistently perform any other function of money.

They may pay for canoes or be traded against one another, but they do not facilitate

every-day exchanges, as those of food or implements, nor are market values of other

commodities expressed in them.

With many African tribes the case has been different. The use of hoes or cattle as true

money is dubious, but it is clear that such objects as iron bars (often in the form of

conventionalised spear-heads or knives), cowrie shells, salt and cloth served as definite

media of exchange and as common

measures, standards and stores of value.

The cowrie (Cypraea moneta) is one of

the most striking forms of native

currency: it ranged in west Africa from

the Sahara to the Gulf of Benin, taking in

the whole basin of the Niger-Benue, and

including also the upper Congo-Lualaba

area, its economic sphere centred

especially in Timbuktu, the district of the middle Niger, and the country around Lake Chad.

Sometimes the shells were strung on a cord, sometimes kept loose in a leather bag, and

transactions of all kinds, from simple village marketing to buying and selling on a large

scale, were accomplished through this medium.

Coins

A coin is a piece of metal or, rarely, some other material (such as leather or porcelain)

certified by a mark or marks upon it as being of a specific intrinsic or exchange value.

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The use of cast-metal pieces as a

medium of exchange is very ancient

and probably developed out of the

use in commerce of ordinary ingots of

bronze and other metals that

possessed an intrinsic value. Until

the development of bills of exchange

in medieval Europe and paper currency in medieval China, metal coins were the only such

medium. Despite their diminished use in most commercial transactions, coins are still

indispensable to most modern economies.

Money and Cash

Money is a commodity accepted by general consent as a medium of economic exchange.

It is the medium in which prices and values are expressed; as currency, it circulates

anonymously from person to person and country to country, thus facilitating trade, and it is

the principal measure of wealth.

The subject of money has fascinated people from the time of Aristotle to the present day.

The piece of paper labelled 1 dollar, 10 euros, 100 yuan or 1,000 yen is little different, as

paper, from a piece of the same size torn from a newspaper or magazine, yet it will enable

its bearer to command some measure of food, drink, clothing, and the remaining goods of

life while the other is fit only to light the fire. Whence the difference? The answer is that

modern money is a social contrivance. People accept money as such because they know

that others will. This common knowledge makes the pieces of paper valuable because

everyone thinks they are, and everyone thinks they are because in his or her experience

money has always been accepted in exchange for valuable goods, assets, or services.

Originally meaning a box, the word cash, derived from the French casse (a box or chest),

is now commonly applied to ready money or coins and banknotes. Hence “to cash” means

to convert cheques, bills, drafts and securities into coins and banknotes. Whereas the

term currency has been used variously to designate a part or the whole of the circulating

medium or money of a country.

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Paper as a form of currency in Australia2

The use of paper as a form of currency dates back to ancient China and possibly Carthage

BC. The first issue of banknotes as we know them today began with the foundation of the

Bank of England in July 1694. In Australia during the early days of the Colony of New

South Wales, there was a great scarcity of money as the First Fleet did not bring any

money with it. Various methods were adopted to overcome this lack of currency. Many

Colonists resorted to barter, the exchange of goods for other goods, whilst others resorted

to IOUs.

The earliest notes were store receipts and paymaster’s bills issued by the military

authorities for produce or labour. These receipts passed freely from hand to hand, but

were supposed to be presented to the Commissary General every quarter for payment —

although frequently they remained in circulation for much longer periods. Often the private

IOUs and promissory notes proved worthless, as many were issued by dishonest people

and those issued by honest merchants were subject to forgery. In 1800, Governor King

attempted to regulate matters by ordering that no handwritten promissory notes were to be

issued and that printed promissory notes were to be used. Unfortunately, the handwritten

notes continued to be issued during Governor Macquarie’s time. In 1810, Macquarie

issued a proclamation outlawing the issuing of promissory notes of five pounds or less.

However the situation did not improve until the arrival of an adequate supply of coinage

and improved facilities for printing notes.

Some of the first notes issued were the Police Fund Notes, around 1816. Shortly after

these were issued the Bank of New South Wales was established, and commenced to

issue Bank notes. Subsequently other banks were established, and they too issued notes.

Banks continued to issue notes until there was a major depression in the early 1890s.

This caused 54 of the 64 banks operating to close, many never to re-open, and the

2 Primarily based on “Banknotes of Australia,” written by Barrie Winsor and printed by Standard Publishing House

Pty Ltd

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Queensland and New South Wales State Governments were forced to issue State

Government Treasury Notes. Federation in 1901 gave the Commonwealth Government

the right to legislate for an Australian note issue, but it was not until 1910 that the first

Australian note was issued. At the same time a tax of 10% on private bank notes was

introduced, and this effectively stopped the circulation of the private bank notes.

The first notes were temporary issues, as the Commonwealth Treasury did not have the

ability or time to produce their own notes. Unissued Bank Notes were purchased from the

banks, overprinted and then issued. These overprinted or “super scribed” notes were

withdrawn when the first Australian notes were printed and issued from 1913 onwards.

The original overprinted notes were payable in gold coin.

Denominations of 10 shillings, 1, 5, 10, 20, 50 and 100 pounds circulated in the economy,

although 1000 pound notes were used by the banks for inter-bank settlements.

During the Second World War the 50 and 100 pound notes were withdrawn.

On 7 April 1963 the Treasurer announced the change to a decimal currency. Over 1,000

names for the new currency were considered before Sir Robert Menzies, showing loyalty

to the Crown, decided it should be called a “Royal,” but public opinion was so strong

against the “Royal,” that it was changed in favour of “Dollar.”

On 14 February 1966 four denominations were issued: 1, 2, 10 and 20 dollars.

Subsequently 5, 50 and 100 dollar notes were issued, and the 1 and 2 dollar notes were

replaced by coinage.

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Case Study: Sweden – a front runner as a cashless society

Sweden, the first nation in Europe to introduce banknotes in 1661, is aiming to be the

first cashless society. This goal is realistic in the very near future with less than 20% of

retail transactions currently involving cash and currency representing only 3% of the

economy and trending downwards. A concerted effort needed to be conducted to bring

about such a low transaction rate utilising coordinated bank action, mobiles, internet and

payment cards.

Not only are fewer notes and coins being printed each year, but also the major banks are

limiting the handing out and receiving of cash at branches. Approximately 70% of

branches of the major lenders are currently cashless.

The advent of a real time payment platform in 2012 has also and will continue to

accelerate the ease away from cash transactions and uptake of electronic payments,

such as P2P (Person to Person) payments. Swish, a mobile app developed in

conjunction with Sweden’s six largest banks allows transactions between people in real

time.

Public transport in Sweden, particularly buses, is not possible with cash. Tickets can be

either purchased with a text message using a mobile phone or be pre-paid.

It is important to note that the move away from a cash transaction society is not as utopic

as it may appear. Whilst bank robberies have obviously reduced (currently at its lowest

levels in 30 years)*, the prevalence of online crime, including card-present fraud, has

increased greater than 80% (between 2000 and 2011).

*Indeed, this trend has become problematic for some bank robbers, particularly for a

man who held up a cashless Swedish bank branch and was forced to leave empty

handed: http://www.thelocal.se/47484/20130422/ Also see a further article on Sweden

in the appendix.

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3.2. The move to cards, especially contactless for low value

The move to card payments is nothing new, dating back over 60 years to the first Diners

Club cards in 1950. The more relevant point regarding card payments is their ubiquity

across the world, with a handful of internationally dominant brands competing against

regional and domestic payment systems. All of these card programs combined, whether

they are from the international giants such as MasterCard and Visa or domestic payments

such as EFTPOS, are driving cash payments out of the system at an ever-increasing rate.

Add to this “alternative” forms of payment that are not card-based, notably PayPal and bill

payment systems such as BPAY, and the presence of cash, is further eroded.

Electronic forms of payment are furthering their reach around the world in developed and

developing economies alike. In developed nations, the move to electronic payments

promotes efficiency, speed and convenience, and security — rendering more benefits from

existing payment methods. However, in developing nations, electronic payments often

represent a step toward financial inclusion. Whereas previously people did not have a

way to participate in the banking system in many developing nations, systems such as

GCash in the Philippines and M-Pesa in Kenya offer everyday electronic payment

capabilities to millions of people previously excluded.

Electronic payments continue to displace paper-based transactions (including cheques) in

the consumer and business realms, but it can be said that there is still a long way to go

before we approach a “cash-less” society. Scanning the globe, New Zealand provides a

benchmark for the level of penetration that electronic payments can achieve, starkly

highlighting the challenge that lies ahead for much larger economies around the world.

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Figure 3.1: Cash as % of GDP Versus Total Electronic Transactions per Adult (2012)

Clearly, large Asian economies have enormous potential to increase their use of electronic

payments, and thus improve the efficiency of their payment systems. Indeed many of the

Governments in these countries are “pushing” the increased use of electronic payments,

but primarily in terms of tracking transactions in order to improve the taxation base

(circumventing the anonymity of cash).

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3.3. Increase in online shopping and online bill payment

As the internet continues to expand and reach more and more households globally, so too

does the reach of online payments for shopping and bill payment. Growth in payments for

online shopping on scheme credit and debit cards, in particular, are accelerating the shift

from cash to electronic payments, as it is not possible to pay with cash on the internet.

Case Study: Technology promoters of a cashless society

The use of contactless cards are associated with a quick take-up as a result of their fast

transaction speeds and their replacement of small value transactions, especially when

utilised in transport settings. Key examples of this are the Octopus and Oyster Cards.

Octopus Card (Hong Kong)

The Octopus card, which was launched in 1997, is an NFC enabled rechargeable

prepaid card for use in Hong Kong. Currently, there are over 20 million cards in

circulation generating greater than 12 million daily transactions at an average

transaction value of $10.

Its initial use was for the mass transit system as a closed loop technology. It was then

expanded to vending machines, parking meters and retail outlets, including convenience

stores, pharmacies, supermarkets, and restaurants, such as McDonalds and Starbucks.

Oyster Card (London)

A smart card that is also a strong proponent for a cashless society is the Oyster card in

London. It is the most highly circulated smart card in Europe with over 20 million cards

issued since its 2003 inception and generates ~10 million transactions per day.

As a result of the Oyster card, cash-only fares comprise ~3.5% of Tube tickets and less

than 1% of bus fares (significantly reduced compared to figures in 2003 of ~19% and

18% (for bus and Tube respectively). It is with this low cash transaction value that

Transport for London is looking to remove cash permanently from London buses.

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(Note that this functionality delivered by the major international payment schemes is

causing chagrin amongst the domestic PIN debit networks that are unable to transact

online.) Electronic bill payments and associated systems, on the other hand, due to the

size of the transaction and historical usage bias, are mainly displacing paper cheques

(depending on the country3). The combined effect of these two phenomena serves to

boost the percentage of transactions that are now electronic.

The table below shows the strong growth in online “shopping payments”, which have

grown at an average compound rate of 24% for the three year period of 2010/11 to

2012/13.

Table 3.2: Online Payments in Australia4

3.4. Move to real-time payments

One of the recent global developments encouraging a further shift to electronic payments

is the establishment of real-time payment platforms in some of the more advanced

economies. The Faster Payments platform in the UK became operational in May 2008,

and has processed over 2.5 billion payments worth over £1.4 trillion (equivalent to £54,000

3 Some countries, such as China, have never developed a major usage of cheques.

4 From the Payments System Board 2013 Annual Report.

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for every household in the UK). Singapore is currently reviewing its options for

implementing a similar platform, due to be in place later this year. The US has long

considered real-time settlement for its ACH system, with the FedACH® SameDay Service

currently available.5 Closer to home, APCA is coordinating the New Payments Platform to

facilitate real-time payments for consumer and business use by the end of 2016.

These platforms attack paper-based transactions from two angles. The first

implementation envisioned for Australia’s New Payments Platform is a consumer-to-

consumer convenience payment function, essentially targeting cash transfers between

individuals. The second prong of the attack is against cheque usage, specifically for

business-to-business use. Due to the need for data that accompanies many business-to-

business transactions (for reconciliation purposes, for example), the direct entry system

has been eschewed in favour of a paper cheque that can be appended to an annotated

invoice. The New Payments Platform will have rich-data capability to overcome this

problem, informing the recipient of the specifics related to each payment.

3.5. Movement toward a “less-cash” society

Although noble in its aspiration, a “cashless” society is most likely unattainable in the

foreseeable future, given the inertia in consumer behaviour and the continued use of cash

for nefarious purposes. Instead, some economies have set their sights on a “less-cash”

society, working not to eliminate, but to reduce cash. Bank Indonesia, for one, has

adopted the “less-cash” mantra in its publications as the central bank of Indonesia. With

almost 250 million people and a card penetration rate of less than 15%, even small

movements to electronic payments will benefit Indonesia in terms of efficiency and cost

reductions in supporting the payment infrastructure.

5 Source: www.nacha.org/node/1403

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4. Cash Trends in Australia

In Australia, cash is issued in the form of banknotes by the Reserve Bank of Australia

(RBA) and coins by the Royal Australian Mint (RAM). A very small amount of the issued

currency is collected for numismatic purposes, for keepsake/memento, rarity and/or

potential increase in value. The vast majority, however, goes into general circulation (via

the banking system) where it is used as a means of exchange of value in transactions and

as a means of stored value. Both the RBA and RAM will exchange damaged/mutilated

items for new, replacement banknotes and coins; but, whereas the RBA will allow

“repatriation” of any surplus banknotes, the RAM currently has a legislated policy of not

accepting back unwanted/surplus coins.

As the world moves away from “paper-based” payments and adopts a variety of different

forms of electronic payments, Australia is positioned ahead of most countries in this trend.

The chart below provides our estimates of payment transaction volumes and values by

various methods in Australia from 2005 (DCITA data)6 to today (2013) — Section 8 below

provides our views on how this will change further in the future.

6 “Exploration of future electronic payments markets” published by the Australian Federal Department of

Communications, Information Technology and the Arts, June 2006

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Figure 4.1: Total Payment Transaction Volume and Value by Method in Australia

Understanding that it covers all forms of payment (including for example inter-company

transfers of funds), the chart shows how the volume and value of payments has expanded

in the Australian economy over the last eight years, with:

• the number of transactions growing from 16.8 billion in 2005 to 19.7 billion in 2013

(+17%);

and

• the value of payments climbing from $10,024 billion in 2005 to $15,100 billion in

2013 (+51%).

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Over the eight year period, only the two paper-based payment methods, cheque and cash,

have reduced in their share of both payments transactions and payments value — with all

forms of electronic payment growing. Although its transaction share has declined by an

average of almost two percentage points per year (from 73% in 2005 to 59% in 2013), due

to the overall growth in the payments market, our estimates are that cash has seen only a

small decline in absolute terms:

Table 4.2: Cash Payments 2005 vs. 2013 Source: RBA Payments Statistics

Cash Payments 2005 2013 Change Number of Transactions (#million) 12,329 11,700 -5% Value of Transactions ($million) $203,113 $187,193 -8% Average Transaction Value ($) $16.47 $16.00 Value of Transactions per Capita per year ($) $9,991 $8,409 -16% Value of Transactions per Capita per month ($) $833 $701 -16%

The majority of this absolute decline appears to have occurred recently, as payment

methods such as contactless card transactions have risen rapidly (spurred by the

acceptance of contactless transactions by the two main supermarket chains in mid-2012).

The recency of this decline seems to be supported by the reduction in ATM withdrawals

seen in 2012-2013, although not by any drop in cash on issue (see below).

This recent decline in cash usage is also detected in consumer research, as shown in the

chart below.

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Figure 4.3: Regular Payment Methods, March 2013

As can be seen, cash usage dropped by around 10 percentage points in the six months

between the September 2012 and March 2013 rounds of the survey, having held relatively

steady for the previous three rounds. The chart indicates that these cash transactions

were substituted by payment methods already/previously in use by the consumers, as

there was no significant lift in any of the other methods between September 2012 and

March 2013.

Similarly when consumers are asked to assess changes in their level of spend across

different payment methods, both cash and cheque (as well as charge card) are nominated

as having less spend, and a broad range of different types of electronic payment are

nominated as having higher spend; as shown in the chart below.

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Figure 4.4: Changes in Spending Methods, March 2013

As shown in the chart below, on a per capita basis, ATM withdrawals have fallen among

Australians since peaking around January 2009 at just over $600 per month. Current

withdrawals of around $525 per month per person are down 14% from the peak — a

similar reduction to the cash transactions per capita seen between 2005 and 2013 in Table

4.2 above.

Figure 4.5: Australian Monthly Total ATM Transaction Value per Capita 2002-2013

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At the level of retail payments, the overall value of ATM cash withdrawals first stagnated

and then began to fall as card activity continued to increase in terms of overall value; as

shown in the chart below.

Figure 4.6: Australian Annual Transaction Value by Type of Payment 2002-2012

Consumers still prefer cash for some payment scenarios, as shown in the research results

below.

Figure 4.7: Cash Preferences for Different Purchase Types, March 2013

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As can be seen, consumers still see cash as playing a large role in:

• Mass transit ticketing – but this is being changed in Brisbane, Perth, Melbourne and

Sydney through the introduction of eTicketing;

• Low value purchases and arena purchases – but these areas are being “attacked”

by contactless card transactions (e.g., ANZ Stadium in Sydney);

• Taxi payments – this is a more difficult area for open-loop card payments, which are

currently surcharged 10%, driving consumers to continue their use of cash.

As noted above, ATM cash withdrawals have been decreasing in overall and per capita

value. This has primarily been driven by a reduction in the number of transactions rather

than any major change in the average transaction value. The chart below shows that ATM

cash withdrawal transactions have fallen from about 72 million per month in early 2009

down to 68 million per month in early 2013.

Figure 4.8: Monthly ATM Withdrawals, 12 Month Rolling Average, 2009-2012

Reviewing ATM activity over a longer period of time, one can see that there has been

significant deployment of ATMs across Australia, but that this appears to have peaked.

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Figure 4.9: Evolution of the ATM Industry (1994-2013)

A similar peak in ATM transactions occurred in 2009. We would assume that in the earlier

years of ATM transaction growth, there was a significant substitution for “over the counter”

cash withdrawals at bank branches rather than a strong growth in cash-based

transactions.

Figure 4.10: Total ATM Transactions per Annum 1995-2013 (12 months to 30 June)

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But deployment of new ATMs outstripped growth in overall transactions, such that the

number of transactions per ATM has been in decline for almost 20 years. Although the

average current level of activity per ATM almost certainly hides a spectrum of higher and

lower activity per machine, the impact on economic performance of the overall drop in

activity is likely to lead to a period of rationalisation amongst the Australian ATM fleet.

Figure 4.11: Average Transactions per ATM per Month 1995-2013 (12 months to 30 June)

It is true that there are other ways to access cash than just the ATM, including “cash out”

transactions at point of sale via EFTPOS. The following chart shows the percentage

breakdown of transactions between ATM cash withdrawals (both “on-us” and “off-us”) and

EFTPOS cash out. It shows that the introduction of Direct Charging at ATMs in 2009 had

two effects:

• Moving ATM transactions more to “on-us” in order to avoid the direct charging

associated with “off-us” activity, although the percentage of “on-us” transactions has

now declined close to pre-direct charging levels;

• Increasing the cash out transactions at EFTPOS, from about 20% to 25% of

combined cash withdrawal transactions at ATM and EFTPOS.

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Figure 4.12: % of Cash Transactions at Own ATM, Foreign ATM and EFTPOS (July 2007 to October 2013)

The average amount of cash withdrawn in an ATM transaction versus an EFTPOS cash

out transaction7 is quite different and quite constant over time (regardless of inflationary

effects), as shown in the chart below.

7 Note: The data for EFTPOS cash out transaction includes both “cash only” and “cash with purchase” transactions.

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Figure 4.13: Average Cash-out Transaction Value at Own ATM, Foreign ATM and EFTPOS (July 2007 to October 2013

As the percentage of cash withdrawals is dominated by ATM activity and as each ATM

withdrawal is 3-4 times the size of an EFTPOS cash out transaction, ATMs dominate the

source of cash withdrawals, as seen in the chart below.

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Figure 4.14: Monthly Value of Cash Withdrawn via ATM, EFTPOS and Credit Card Cash Advances, July 2003 to October 2013 — 12 month rolling average

Although the value of EFTPOS cash out transactions has been rising, the increase has not

been sufficient to offset the decline in ATM withdrawals, hence overall cash withdrawals

have declined in absolute terms since the end of 2008.

Just as there has been a move from credit cards to debit cards in purchase transactions,

since 2008, the increase in the amount of cash accessed by EFTPOS cash out (debit) has

closely mirrored the reduction in cash advances taken on credit cards, as shown in the

chart below.

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Source: RBA, RFi

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Figure 4.15: Monthly Value of Cash Withdrawn via EFTPOS and Credit Card Cash Advances, July 2003 to October 2013 — 12 month rolling average

4.1. A highly carded population

Australia has a very highly carded population, where over 50 million payment cards

circulate amongst 23 million people (of whom 81% are over the age of 15 years old) and

everyone who qualifies for a credit card already owns (at least) one card. The prevalence

of annual fees on credit cards does limit the number of cards per person, the average

being about 1.3, unlike the card proliferation in for example the USA and Taiwan where

cards without annual fees are the norm. In addition, consumers have fully embraced

EFTPOS and Scheme debit cards. Indeed, combined with an average debit card

penetration of close to two per person, each consumer over 15 has, on average, access to

about three cards by which they can make online and/or in-person purchases.

The high penetration of payment cards is shown in the consumer research results charted

below.

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Figure 4.16: Card Ownership by Type, Sept 2011 to Sept 2013

Credit cards still dominate on a total value basis (compared to Scheme and EFTPOS debit

cards) due to their higher average ticket size. On a transaction volume basis, however,

debit cards have surpassed credit products, and continue to widen the gap rapidly — as

shown in the chart below.

Figure 4.17: Australian Annual Transaction Volume by Type of Retail Payment 2002-2013

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Despite a recent slowdown in the growth of credit card activity, the long-term trend from

2003 shows an increase in both the average purchase activity per account, as well as the

average balance per account — as shown in the chart below.

Figure 4.18: Indexed credit card average per account spend versus average per account balances

Although total payment activity in the economy is growing due to increases in the

population, GDP and CPI, this strong increase in debit and credit card usage means that

Australians are choosing to use their cards on more occasions, necessarily substituting

away from other payment mechanisms, including cash.

4.2. Australian contactless usage is the strongest in the world

Despite its lukewarm reception in other parts of the world, open-loop contactless

payments8 are proving to be a runaway success in Australia, where per capita use of the

product has been reported as the highest in the world.

On the consumer side, measures of contactless card ownership, awareness, activation,

and usage are all growing steadily, as shown in the market research results charted below.

8 Note: Use of closed-loop contactless cards, particularly associated with mass transit systems, have extremely

high usage levels in a number of overseas countries (e.g., the Octopus card in Hong Kong), which would exceed

current usage of open-loop contactless in Australia.

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Figure 4.19: Contactless Engagement, March 2013

Just as important, the acceptance side is also developing rapidly, with supermarkets,

petrol stations, convenience stores, and quick service restaurants leading the contactless

acceptance curve — as shown in the chart below.

Figure 4.20: Annual Number of Transactions, Contactless vs. Total (millions)

Indeed, Coles reports that over 70% of its MasterCard and Visa card transactions are now

contactless.

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This convergence of access to contactless payment cards and the ability to use them for

purchases, where speed and convenience are important, is resulting in a reduction in cash

usage as evidenced by a declining average card transaction value, and a decrease in

cash withdrawals from ATMs. As can be seen in the chart above, the average transaction

value (ATV) for personal credit cards has decreased from $145.18 in December 2010 to

$136.97 in December 2013, as the number of transactions jumped by 17 per year,

indicating that card payments are encroaching into low value payments that were

previously the domain of cash.

4.3. The potential for mobile payments to displace cash

The next expected development in electronic payments is in the area of mobile phones.

The proliferation of contactless acceptance devices (whether they be fixed line terminals at

merchants, wireless acceptance devices linked to a base station such as in restaurants, or

truly mobile devices such as in taxis) paves the way for NFC-based mobile payments from

a handset. In a recent survey of Australian consumers, it was found that over 20% of

Australian consumers said that they would be likely or very likely to use NFC payments, if

they were available – as shown in the chart below.

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Figure 4.21: Likelihood to adopt new Mobile Payment Methods, March 2013

The major banks in Australia are all trialling and/or rolling out mobile phone NFC

capability. In a number of overseas markets, the adoption of this form of payment has

really only been adopted by consumers once the mass transit eTicketing system has been

embedded within the mobile phone, thereby “training” consumers in a new behaviour of

tapping on and tapping off with their mobile (instead of a card); this has yet to occur in

Australia.

However, with the emergence of new payment methods, consumers are cognisant of

security concerns, which may ultimately limit adoption, at least in the near-term — as

shown in the chart below.

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Figure 4.22: Security Concerns for New Payment Types, March 2013

Probably as large an opportunity as consumers utilising mobile handsets to make

payments, is the ability of small/infrequent merchants to accept payments via a mobile

handset, e.g., mPOS devices. This is explored in more detail in Section 8 below.

The chart on the following page attempts to show the major flows of cash throughout the

Australian economy.

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5. Summary Observations – Australian Consumers

As part of its Research and Advisory division, the RFi Group runs multiple surveys

annually to understand Australian consumers’ payment behaviours and attitudes toward

payments. Each year, we survey over 200,000 consumers and small businesses globally

through a variety of means, primarily on-line and over the phone. The aggregation of

these results gives us a strong indication of consumer sentiment regarding current and

emerging payment methods, as well as a view as to where the future might lie for

payments.

The primary consumer study used for the analysis in this Section is the RFi HP Australian

Payments Report, conducted most recently in September 2013. This is a twice-yearly

study, reaching over 2,000 respondents from across the country. The data presented

herein spans a two-year period from September 2011 to September 2013.

5.1. Results from the consumer survey

Overall, consumers indicated a move away from cash to electronic payments, particularly

to credit and debit cards. Micro- and low-value payments remain the domain of cash, but

the threshold for what constitutes a “low value” payment appears to be decreasing.

While cash remains strong as a payment type, with 70% of consumers saying they use it

regularly for payments, that percentage has decreased markedly down from almost 90% a

mere two years ago.

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Figure 5.1: Proportion of Usage by Payment Type, Sept 2011 to Sept 2013

Within those two years, we have seen the proliferation of contactless cards and

acceptance terminals, which has no doubt hastened the move to electronic payments

away from cash. On a transaction volume basis, consumers report a 28% reduction in the

number of cash transactions over the two-year period.

Figure 5.2: Average Number of Transactions by Payment Type in One Month, Sept 2011 to Sept 2013

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This reduction in cash spending comes as a result of two phenomena — spending less

overall, and shifting spending to other types of (electronic) payment. More spend online

(for purchases, services, and bill payments) has also increased the proportion of electronic

payments, as cash is not a viable form of payment to online merchants.

Figure 5.3: Proportion of Spend and Switching Behaviour, Sept 2011 to Sept 2013

For those substituting away from cash-based payments, upwards of 80% are shifting

payment volume to credit or debit cards. Again, this is partially due to scheme debit and

credit acceptance online, whereas EFTPOS currently suffers from a technological gap for

online payments.

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Figure 5.4: Proportion of Payment Methods Switched to, Sept 2011 to March 2013

The survey data confirms that consumers are embracing contactless technology for low

value payments. While the average proportion of payments made by contactless hovers

around 10% for almost every category of purchase presented below, the obvious outlier is

payments for low value items such as coffees, newspapers, and snacks, where the

percentage exceeds 20%, over double the average of other categories.

Figure 5.5: Proportion of Payment Method Authentication, Sept 2013

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In fact, 50% of consumers say they prefer (or strongly prefer) using contactless over cash

for small value transactions, while a stalwart 15% retain their penchant for cash. The

existence of this recalcitrant, cash-centric segment supports our hypothesis that cash will

never truly disappear from the Australian (or even global) economy — at least in the

foreseeable future.

Figure 5.6: Preference for contactless or cash, Sept 2013

Where cash does persist is in small value transactions. The preference for cash for low-

value payments is likely due to a combination of merchant steering (including minimums

for card payments as high as $20), consumer perception of relative speed, and consumer

misperception that cards cannot (or should not) be used for very small transactions. We

believe, however, that as more and more merchants make contactless available for low

value transactions, we will continue to see a decrease in the average transaction size for

credit and debit cards.

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Figure 5.7: Attitudes toward cash usage, Sept 2011 to Sept 2013

However, despite the industry’s promotion of digital and on-line payments, most

consumers agree that there will always be a place for banknotes and coins. The day

when Australians forgo cash entirely is still unforeseeable, and indeed, may never occur at

all.

Figure 5.8: Proportion of respondents who believe that they will eventually stop using cash for payments, Sept 2011 to Sept 2013

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6. Summary Observations – Australian Merchants/Small Businesses

In addition to reviewing prior work in this sector, interviews were conducted specifically for

this assignment with the following organisations:

• Transport for New South Wales

• Woolworths

• Coles

• Australia Post

• Boffa Hairdressing Salons

• Australian Retailers Association

6.1. Large Retailers

Large retailers/merchants fully understand the costs associated with handling cash as a

method of payment, and would prefer to see its use displaced by forms of electronic

payment. Some have taken specific action to remove/reduce cash transactions from their

business, whereas others prefer to allow their customers to choose the payment method

(albeit sometimes making electronic payments easier, for example by adopting contactless

technology).

Transport for NSW

Transport for NSW commented that “It would be beneficial to remove cash everywhere in

transport in order to improve the on-time running of the system.” Hence the organisation

has taken specific action on the road system with eTags replacing cash tolls and on the

mass transit systems with the Opal card being rolled out, to begin replacing other forms of

payment (following on from a previous move to prepaid tickets which successfully speeded

up the bus system). Both eTags and Opal are contactless prepaid systems, with a

direction/preference for users to establish “auto top up” direct from a card or bank account.

Transport for NSW has seen a rapid adoption of technology amongst its customer base,

with over 50% of RTA vehicle registrations now conducted via the internet, and the

downloading of “apps for transport” by over one million users within a matter of a few

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months. The hope is that the contactless Opal card will be adopted with similar speed and

success, although the 1.5 million users of public transport around Sydney are “a very

mixed group” — including a high proportion of single rail fare purchases, the purchasers of

which they believe will be the “longest cash group.”

The plan is to incent people to move onto Opal, and to permit anonymous cards with

remote (not auto) top-up. Indeed the use of cash to top-up Opal cards will still be

permitted, with the Government increasing the number of cash machines to be installed

versus the original plan — wanting to avoid any inconvenience and minimise reasons not

to use the system.

The next horizon will be allowing the mass transit contactless touchpads to accept EMV

open-loop contactless cards, a move being seen in a number of other mass transit

systems around the world, including in London, UK. Although all of the hardware being

installed for Opal is open-loop capable, it is unlikely to “go live” until the original Opal

closed-loop card has been well embedded across the mass transit network.

Transport for NSW also believed that “cash in taxis is probably here to stay.” Partly

because of the surcharge levied on card payments, but also because it has historically

been a cash environment.

Australia Post

A major part of Australia Post’s handling of cash is associated with its agency activities

(i.e., transactions processed on behalf of other entities). Australia Post supports a variety

of payment methods and although they are increasingly enabling customers to utilise

payment cards to speed up transaction processing time and value realisation, e.g.,

through the installation of contactless touchpads, a number of their agency agreements do

not permit payment by credit card and cash remains a preferred method of payment for

many customers.

Approximately 50% of Australia Post’s over the counter transaction payments are made

with cash, but these only account for about 20% of the total value transacted. The data

provided by Australia Post (2008-2011) shows the number of cash transactions has been

falling but the average transaction value growing significantly (38% increase from 2008 –

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2011). This trend has been relatively consistent over time. About 15% of the cash

received by Australia Post goes out again in cash payments or disbursements, for

example through “Bank @ Post” withdrawals and Money Order redemptions.

Australia Post has observed some demographic consistency in the profile of customers

using cash as a payment method. It also anticipates a “generational change” in the use of

cash, however, there has been limited evidence of this as yet. Australia Post has

indicated that, depending on contractual obligations, it will continue to accept most forms

of industry standard payment methods, including traditional payment methods such as

cheques and cash.

A significant attraction of cash is its anonymity. During a study that the RFi Consulting

team undertook for the NSW Office of State Revenue during 2012, we were surprised at

the large proportion of parking and speeding fines being paid in cash over the counter at

Australia Post outlets; anecdotally it was felt that (a) children did not want their parents and

(b) spouses did not want their partners knowing about these infringements and the costs

of the penalties.

Similarly, RFI would observe that consumers receiving cash as payment have a higher

tendency to use cash for their own physical payments. Australia Post provides one of the

only convenient channels for the payment of bills, etc. using cash.

Supermarket Chains

The two major chains are experiencing slightly different trends, but both agree that, from

the viewpoints of cost and security, a reduction in the number and value of cash

transactions would be beneficial. Further areas of commonality are:

• Millions of dollars are spent each year on “cash transit,” both to and from stores;

some concern was raised about what will happen to the unit costs of these services

as the use of cash declines;

• Some stores in particular locations have abnormally high usage of cash, 80+% of

transactions, which tends to be driven by the ethnicity/demographics of the local

population;

• Cash transactions take the longest time to complete at the till;

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• There is a cost and security risk to holding cash in store;

• Cash will not disappear and cashless lanes are unlikely in the near future, except

perhaps at self check-out — many of the people choosing self check-out appear to

prefer to pay by card; there is also a substantial premium in both capital cost and

operating cost of a self check-out machine that accepts cash versus a card-only

machine

• Neither company wishes to do anything that inconveniences their customers in any

way, so have been careful to avoid overt moves away from cash.

Recent experience in one of the major chains has shown:

• Usage of cash in store has been declining year on year by absolute count of value

and transactions, especially since the introduction of contactless card payments;

this trend seems to be accelerating;

• In terms of share, value is now about 70% card vs. 30% cash, and transaction

volumes about 50/50;

• About 70% of card transaction value is now contactless, and accounts for an even

higher share of card transactions;

• Self check-out usage has grown to be around 40% of activity even though it

accounts for a small proportion of lanes, with a bias to contactless card payment;

• A small proportion of the self check-out terminals are card-only (no cash accepted);

• Consistent surplus of 50 cent coins (which need moving to bank), and a deficit

(hence need to purchase) 10 and 20 cent coins

Recent experience in the other major chain has shown:

• Strong growth in payment by debit cards is leading to the percentage of cash-out

debit transactions declining, but the absolute number of cash-outs is holding steady;

however the dollars per cash-out transaction are increasing, by about 10% over the

last two years — presumably driven to some extent by direct charging at ATM;

• The number of cash transactions has not declined significantly, even since the

deployment of contactless;

• A significant proportion of “baskets” are below $10 and most of these are paid for in

cash; a portion of this customer base includes “unbanked” children, who use cash;

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• Coin usage within each store seems reasonably stable, so the main movement

in/out of stores is banknotes.

6.2. Small Retailers

Small retailers have very varied preferences and views on cash, encompassing the full

spectrum from those wanting to remove cash from their business to those who avoid

electronic payments (and not just for the potential tax benefits). Regardless of their

disposition, the view is that cash will diminish over time as a proportion of payment activity,

with consumers wanting to carry less and less cash due to it being both “bulky” and “a risk”

(from robbery, loss, etc.) — the trend will accelerate as electronic payments become

easier, faster, ubiquitous, and 100% reliable (“must work every time to create confidence”).

The majority of small retailers, however, wish to take their customer’s money in whatever

manner the customer wishes to pay, as “making the sale” is the absolute top priority.

Those retailers preferring electronic payments appear to be driven by factors such as:

• Eliminates pilferage of cash by the staff;

• Customers want to pay this way;

• Eliminates the need for going to the bank;

• Easier accounting and reporting;

• Reduces risk of robbery, counterfeits and other perils associated with cash.

These retailers indicate that they do not require minimums or put surcharges on card

payments, as they want to encourage customers to pay by card. Indeed, the merchant

service fees are seen as “not unreasonable” (but “could always be lower”) in relation to the

costs of cash. In two specific merchants, a shoe retailer and hairdressing group, cash

payments have been reduced to 13% and 4% respectively of total value — and both have

deployed contactless touchpads to further encourage card use by customers.

Those retailers preferring cash appear to be driven by factors such as:

• Cost of accepting electronic payments seen as high;

• Cost of accepting cash seen as “nil”;

• Faster speed of transactions;

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• Customers want to pay this way;

• Avoidance of employment costs, such as penalty rates;

• Avoidance of taxes.

The “avoidance” factors seem to be significantly more at play in the bar, restaurant and

café trade and amongst retailers of specific ethnic backgrounds. Many of these retailers

require minimums and put surcharges on card payments, as they want to encourage

customers to pay by cash.

In research conducted amongst merchants in December 2012, there was good recognition

of the potential benefits from the acceptance of contactless card transactions; as shown in

the chart below.

Figure 6.1: Realisation of Contactless Benefits, December 2012

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7. Summary Observations – Financial Institutions and Regulators

In addition to reviewing prior work in this sector, interviews were conducted specifically for

this assignment with the following organisations:

• ANZ Bank (three separate areas covered in three interviews)

• Commonwealth Bank of Australia (two separate areas covered in one interview)

• EPAL

• MasterCard

• PayPal

• Reserve Bank of Australia (RBA)

• Royal Australian Mint (RAM)

• Visa

7.1. Royal Australian Mint

The RAM has a coin consultative committee involving the four major banks, which has

been working on a coin supply chain model to better manage the physical distribution and

gain efficiencies, as clearly the weight and size of coins (more volume and weight for less

value, compared to banknotes) impacts physical movements. A revised supply chain has

been in operation for the last year or so, and seems to have stabilised; the key principle

has been “no risk of shortage.”

Four to five years ago the RAM was issuing about 500 million new pieces of coin into

circulation each year, this has now reduced to around 280 million new pieces of coin.

Internally this reduction in new issuance has been put down to improved efficiency rather

than reduced coin usage by the public, but there has been no specific research conducted

on this.

The total value of coins in circulation is believed to have declined by 10-15% over the last

five years due to efficiency improvements, and is now thought to have stabilised. Such

that today there are about six billion pieces of coin on issue (approximately 300 per person

in Australia), with estimates that 40% of these are hoarded (primarily lower denominations

held in “jam jars”) and 60% in active day-to-day circulation.

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In consumer research conducted by the RAM, 74% of respondents said that they used

coins for low value transactions. RAM management do not believe that the growth in card-

based payments (or other forms of electronic payment) has yet impacted the public’s use

of coins.

Three areas of interest to the RAM are:

1. Coin holdings with the banks

The bank holdings each day are driven by the level of “recirculation” in and out of the

banks via consumers and merchants. The banks are trying to reduce their coin

holdings through better management of the inventory. The banks incur a lower cost

if they can reprocess (and then re-issue) the coins, as this is much cheaper than

freight; hence the banks are working hard on reprocessing their coin

lodgements/deposits faster. There are geographic peculiarities, with Darwin and the

Gold Coast seeming to lose/”leak” coins and other specific parts of the country

generating surpluses; the banks have to manage the movements to balance these

changes. The RAM is just issuing new coins in order to fill the “leakage” (see item 2).

2. Underlying demand for coins

The underlying demand for new coins seems to be driven by change in usage (either

up or down), damaged/mutilated coins and “leakage.” Damaged/mutilated coins

seem to run at about 0.01% of the stock, with the average life of an Australian coin

being about 35 years, and within that the life of 5 and 50 cent pieces being about 45

years (as these tend to be the denominations that are most hoarded, and thereby

kept out of circulation and in good condition). Leakage of coins (out of circulation in

Australia) occurs due to hoarding, overseas tourists leaving the country with coins,

and other events. For example, the RAM’s discussions with the Singapore Mint have

indicated a significant leakage of coins from Singapore due to tourist traffic, as it is a

major international hub.

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3. Behaviour of consumers in hoarding

With 2.4 billion coins held in “jam jars” (hoarded) by the Australian public, there is a

significant reservoir of coins that can be re-injected into (or taken out of) circulation

by changes in hoarding behaviour. The RAM reports that the Global Financial Crisis

saw a significant number of coins come back into the market, and thereby back into

circulation, as people tapped their coin “savings.”

In the reverse direction, and somewhat paradoxically, when eTags were introduced

across Sydney to replace what was primarily a coin-based transaction, there was a

shortage of coins as drivers increased their hoarding: that is, previously the coins

were circulating from the driver to the toll operator to the bank and (either directly or

indirectly) back to the driver; when eTags arrived, the drivers just held on to their

coins and did not immediately place them back into the banking system, causing a

shortage.

The introduction of self-service coin counters at banks and supermarkets has also

impacted hoarding, making it easier and more convenient for people to “cash in” their

coin savings.

There is a seasonality to coin usage in Australia, with summer being the high usage period

(with additional coins distributed in October-November each year). Anecdotally this is

driven by children on school holidays, sales of ice creams and soft drinks, events, and

increased domestic and international tourism. The coins flow back into the banking

system in February, with the “low season” then continuing through to June.

Of importance for this report, the RAM does not “repatriate” (accept back) coins, with the

exception of damaged/mutilated pieces. It would require a specific policy decision to

change this. Our forecast of cash displacement through to 2018, with the specific

targeting of low value payments by mass transit eTicketing, the cardification of parking

meters and the growth of contactless and mobile payments, would indicate that the major

banks may see a build up of coin inventory over the next five years. During this period, the

banks will probably need to request a policy review of repatriation by the RAM, and the

Treasury will need to consider the impact on seigniorage (as the RAM currently books all

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seigniorage as profit to its P&L statement, on the basis that coins issued will never be

returned).

It should be noted that Hong Kong is reportedly the only jurisdiction that has needed to

recall coins back into the Mint for re-melting. This was due to the great success of the

Octopus prepaid card (originally just mass transit, but then expanding into mainstream

retail) in being used for low value, particularly coin-based, transactions. We anticipate that

Australia may be heading for a similar set of circumstances.

7.2. Reserve Bank of Australia

The RBA agrees with many of the market and forecast observations/predictions that we

discuss in the future of cash section (Section 8) later in this report, including:

• Transactional demand for currency/cash may well decline in absolute terms, but its

function as a store of value may keep “cash on issue” higher than one might expect;

at a transactional level, the RBA sees cash as attractive for consumers in P2P

transactions (hopefully to be addressed electronically by the New Payments

Platform) and for its speed (although contactless cards are challenging this);

• Merchants appear to be removing minimums on card transactions, which may

further displace cash through increased card usage;

• Online shopping, self check-out, unattended terminals, etc. are all expanding the

use of electronic forms of payment and leading to the displacement of cash;

• Mobile acceptance of cards (e.g., mPOS) is likely to grow in the future;

• The cost of upgrading cash receiving vending machines to receive the planned new

series of banknotes9 (see next page) may lead them to cutting out cash

acceptance, and moving to acceptance of only electronic payments;

• The anonymity of cash is a major attraction, particularly in the black economy and in

criminal/illicit activities;

9 Note: A new set of designs for Australia’s banknotes are to be released into circulation in the near future.

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RBA Bulletin (March 2014): The Next Generation Banknote (NGB) Project

Mindful of the increasing threat posed by counterfeiters – particularly to banknotes printed on polymer – the Bank has for a number of years been undertaking research into new anti-counterfeiting technologies. This work was formalised in the NGB project that was established in 2007, publicly announced in 2012 and will culminate in a new, more secure banknote series being introduced in coming years. There are many aspects to the NGB project that make it an undertaking of considerable complexity. In addition to production and design, a number of key stakeholders have had to be engaged and there are significant logistical issues that need to be addressed. Banknote production and design The production of the current banknotes involves many complex processes and the application of multiple layers of inks and security features. The NGB project brings further complexity to the production cycle with the addition of new security features and changes in design.

To determine which security features would be appropriate for the next generation of Australian banknotes, over 200 features were assessed based on the criteria of resilience to counterfeiting, functionality, durability, production-readiness and cost of production. Further, to take full advantage of the opportunities that polymer substrate offers, the new banknotes will incorporate state-of-the-art security printing technologies as well as multiple windows with designs that are significantly more complex than those on the current series. The new banknotes will also feature up-to-date intaglio and offset printing techniques, which will achieve greater fidelity in the print quality. As part of the design process, the Bank is consulting with designers, artists and historians to ensure that the new banknotes reflect Australia’s cultural identity while remaining functional and recognisable. Accordingly, a decision was made to retain many of the salient characteristics of the current series including the people portrayed on the banknotes, size, general colour palette and denominational structure. An important driver in this decision was the Bank’s continued commitment to assist the vision-impaired community, who rely on the size differentials, the distinct colours of our banknotes and the bold numerals to distinguish between different denominations. The Bank was also conscious of the multitude of machines that accept banknotes and the benefits to manufacturers and users of these machines of retaining the size and denominational structure. In the process of finalising the design, the Bank is conducting rigorous production trials with its banknote printer, Note Printing Australia.

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• Cash is unlikely to disappear, but there may be a generational change (reduction) in

the level of use.

The amount of cash on issue continues to increase at a rate of around 6% per year, with

most of the additional value being in $50 (the ATM “note of choice”) and $100

denominations, and minor increases in $5, $10 and $20 banknotes. The demand for $100

banknotes showed a sharp increase during the GFC and seems to spike every time the

value of the Australian dollar falls on Foreign Exchange markets. The RBA is aware that

the banks and foreign exchange operators, e.g., American Express, are shipping

banknotes to overseas locations, but the quantum is not clear.

The amount of hoarding of banknotes by consumers in Australia was highlighted during

the Victorian bushfire disaster, when significant quantities of burnt banknotes (most in neat

bundles) were returned to the RBA for replacement — with replacement effected as long

as it was clear that the burnt item was formerly a legitimate banknote. Indeed, cash usage

in disaster areas does appear to be an important issue, as cyclones, flooding and

bushfires can disrupt the equipment and communications systems used for/by electronic

payments and people revert to paying by cash.

Unlike the RAM, the RBA treats seigniorage as a Balance Sheet (rather than P&L) item

and states that seigniorage does not enter its thinking when considering banknote supply

— which is driven purely by the demands of the commercial banks. Further, the RBA has

two “windows” each year when the commercial banks are free to return any surplus, fit

banknotes — such that there is a mechanism for the value of banknotes on issue to

decline, if cash usage reduced to levels that generated a surplus.

The RBA has no particular preference for cash usage to rise or fall, but does want greater

efficiency in the payments system. To this end, it is happy for people to make their own

choices on payment methods and for the market to decide.

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7.3. Payment Card Schemes

It is obviously in the interests of all payment card Schemes (domestic & international,

closed loop & open loop) to see cash transactions displaced by card transactions, and this

has in fact been the long-term trend. Indeed, the authorities in a number of countries have

encouraged the move to card payments for, amongst other things, reasons of efficiency

and traceability.

Historically, low value transactions have, however, been the domain of cash, but the rapid

adoption of contactless card payments in Australia has seen this key bastion of cash come

under severe attack. Vipin Kalra, Australian Country Manager for Visa projected that “Just

as our children under 30 today do not understand how to write a cheque, maybe our

grandchildren or great grandchildren won’t understand why their aged grandparents

needed wallets to hold cash.”

Comments from the Schemes on cash activity include:

• Cash has been declining in relation to all forms of electronic payment for five years

or more, driven by:

o The proliferation and adoption of electronic forms of payment;

o ATM direct charging;

o Introduction of contactless card payments, eTags, eTicketing, etc.;

o Growth in online sales.

• All new POS terminals will be contactless enabled, such that in about five years’

time all retail outlets will be covered;

• Cash is a high cost payment system, but the cost is not suffered by the people who

use it;

• The black economy and criminal activities will continue to use cash, and significant

Government intervention will be needed to impact this; if these become the only

sectors using cash, then they will stand out and be easily identified for law

enforcement;

• Merchants’ use of “minimums” on card transactions seem to be reducing in both

frequency and quantum;

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• A segment of incoming travellers from overseas are still likely to rely on cash, as

they may not come from countries with the same level of development in

banking/card systems as in Australia;

• Future developments, such as the New Payments Platform, mobile NFC and

contactless EFTPOS cards, are likely to further displace cash;

• The average size of a payment card transaction is dropping:

o Debit seems to be dropping faster than credit;

o One Scheme noted that transactions under $15 were growing at four times

the average growth rate.

The Schemes understand the advantages and disadvantages of cash, and use these

when positioning their products:

Table 7.1: Disadvantages and Advantages of Cash

Disadvantages of Cash Advantages of Cash Bulky Control (budgetary: only spend

what you have) Unhygienic Certainty of acceptance You have to go and get it No transaction failure Unsafe to carry in large quantity

Easy distribution (e.g., easy to pay staff)

Not always fast and convenient Instant transfer of value Can’t track where or what you’ve spent

Not traceable

The Schemes would like to see the Government play a bigger role in the displacement of

non-electronic forms of payments, e.g., the tax on cheques in Ireland; tax deduction

capability of card payments in Korea; expansion of the Basics card and use of reverse

EFTPOS for medical payments.

The Schemes talk of “a world beyond cash” and see a secular change to all forms of

electronic payments, which, together with the launch of new payment methods, will see a

significant reduction in cash usage over the next few years.

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7.4. Financial Institutions

The major banks were surprised by the decline in ATM withdrawals in 2012 (and ongoing),

and by its severity. The onset of the decline appears to have been obfuscated by the

impacts of direct charging, gaming legislation and other factors; hence the great success

of contactless cards (driven by the issuing and acquiring divisions and the Schemes) in

displacing cash transactions appears to have crept up on the ATM divisions, with

unexpected consequences.

There is a feeling that the launch of contactless EFTPOS could lead to another wave of

cash displacement as big as seen with Visa payWave and MasterCard PayPass, as

consumers view EFTPOS as more interchangeable with cash (i.e., “their own money”).

Some see this as potentially leading to a further 10% decline in ATM withdrawals.

Given the decline in ATM withdrawals, but at the same time the need for re-investment in

the fleet both for EMV compliance and the provision of multi-functional capability, it would

appear that both a reduction in the number of ATMs deployed in Australia and a

rationalisation of the players in the ATM market are likely to occur.

Cash is seen as holding more sway with:

• Saving for a rainy day (hoarding);

• The “older generation” (as well as being habitual cash users, many have concerns

about the security of electronic payments);

• Certain cultures/ethnic groups;

• Café’s and small traders — with many of these still retaining “minimums” on card

transactions — continue to “sow the seed of doubt” in the minds of consumers that

they can survive without cash in their pocket;

• Rural and resort towns, where there are a large number of “cash only” shops;

• Pensioners moving assets into cash (an untraceable asset) in order to meet various

“means testing” regimes;

• The black economy;

• Illicit/illegal activities.

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In addition to domestic hoarding of cash by some consumers, there were thoughts that

significant holdings of Australian dollars may reside in Hong Kong, Toronto, London, and

elsewhere.

Clearly, the growth in the use of debit and credit cards, and the expanding points of card

acceptance in Australia have been significant over the last 10 years. More recently the

average ticket size of card transactions has been declining and the proportion of

transactions under $50 has been growing strongly, driven in the last 18 months by the

rapid adoption of contactless transactions. The launch and adoption of contactless

EFTPOS and mobile NFC are likely to see a further acceleration in the displacement of

low value cash transactions.

The mobile payment arena is currently nascent, but may well be boosted by services like

V.me, MasterPass and PayPal’s mobile wallet. The further adoption of digital, mobile,

online, etc. all cuts into cash usage.

PayPal’s research indicates that consumers do in fact worry about carrying a large amount

of cash on them, and have tended to cut down on their holdings. But carrying less cash

on your person tends to lead to using less cash and paying more using electronic methods

— further leading to less need for cash.

The feeling amongst the banks is that repatriation of coin to the RAM will be needed, as

“there already appears to be enough coin in the banking system to last 18 months.” This

situation will only be exacerbated as coin-based transactions are displaced by eTicketing

(e.g., the roll out of the Opal card in Sydney), the cardification of unattended terminals and

parking meters, the growth in low value contactless card transactions, etc.

The Financial Institutions felt that the Government could do more to assist in the

displacement of cash in the economy10; not only in attacking the black economy, but also

in educating the public about the lower cost of electronic payments and moving to stop

using cash (both receiving and paying) itself.

10 The Government leading by example in the displacement of paper-based payments was one of the

recommendations of the DCITA Report in 2006.

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7.5. APCA survey of Financial Institutions

In parallel with our work on this study, APCA undertook a survey of a number of its

member Financial Institutions regarding their cash activities. Although the survey findings

are being reported separately, we felt that the inclusion of some of the data in this

document may be beneficial. Hence the following charts provide some graphical

representations of the survey findings.

The annual value of notes purchased by the survey respondents has fallen by 3% each

year between 2010-2011 and 2012-2013, as shown below.

Figure 7.2: Total Value of Notes Purchased (Annually)

There is a seasonality to the banknotes purchased in by the Financial Institutions, with

peaks around Christmas and Easter. The chart below shows that, for the most part, each

successive year is showing a reduced purchase of banknotes in the same month.

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Figure 7.3: Total Value of Notes Purchased (Monthly)

Despite purchasing less cash than in previous years, the value of cash held at the

branches of the survey respondents appears to have increased between 2010-2011 and

2012-2013, as shown below.

Figure 7.4: Total Branch Cash Holdings (Annually)

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Again there is a seasonality to the branch cash holdings of the Financial Institutions, with

peaks around Christmas and Easter. The chart below shows that, for the most part and

counter to the trend in banknote purchases, 2012-2013 is showing an increased branch

holding of cash in the same month.

Figure 7.5: Total Branch Cash Holdings (Monthly)

ATM cash holdings show a similar pattern to branch cash holdings: such that, despite ATM

withdrawals (as discussed in Section 4 above) and banknote purchases declining each

year, the cash holdings at ATMs rose between 2010-2011 and 2012-2013.

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Figure 7.6: Average ATM Cash Holdings (Annually)

This growth in cash holdings at ATM is more exacerbated if reviewed on a monthly basis,

with levels in January-June 2013 rising by over 10% from the prior two years. This

appears to have been caused by replenishments being held constant, whilst withdrawals

dropped away.

Figure 7.7: Average ATM Cash Holdings (Monthly)

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Figure 7.8: ATM Replenishments (Monthly)

7.6. Overall

There was overall agreement amongst industry respondents that cash usage in Australia

is likely to undergo an “S-bend” shaped reduction in both transaction volumes and total

value. The key questions being how deep is the reduction and over what time period?

Following this “one time step change” in cash usage, it was felt that there would be

ongoing cash displacement, but at a slower rate as the “harder to attack” areas of cash

usage (older generation, ethnic groups, black economy and illicit activities) would remain

resistant to electronic payments.

There were some thoughts about a “snowball effect”: if cash withdrawals at ATM decline,

then the ATM fleet is likely to rationalise and reduce in number, making consumers’

access to cash more difficult, so that consumers become more reliant on other forms of

payment; as consumers see that they can easily live day-to-day with a lower amount of

cash, as acceptance of electronic payments becomes more widespread (even at the

lowest values of transaction), then they access even less cash causing cash withdrawals

at ATM decline further; and so it goes on.

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8. The Future of Cash

Human behaviour tends to dictate that payments are habit forming11. Indeed research

indicates that most people are “locked in” to their payments behaviour by the age of 30,

such that they tend to use a specific method for a particular payment and use that same

method for each occasion on which that payment occurs. This tends to be because it is

easy to repeat what was successful previously, almost on “auto-pilot,” rather than to have

to think about a new way of doing something — this goes for many things in life, with

payments being just one of them.

Therefore to “change the way we pay” takes both a long time (with limited changes

occurring year on year) and a much stronger value proposition to the consumer (in order to

break “the habit”). This is seen in the chart below, where substantial changes have

occurred in Australia’s use of payment methods — but only over a 12 year period.

Figure 8.1: Australian Annual Transaction Volume by Type of Retail Payment 2002-2013

11 See Appendix for further information on habits.

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The extremely rapid adoption of contactless card payments by Australians in 2012-2013

has been an outstanding exception to the normally slow rate of change in payment

behaviour, with Coles Supermarkets quoting that 70% of all Visa and MasterCard card

transactions in their stores had changed to contactless within less than 18 months of the

technology being introduced at the cash registers.

As noted in the DCITA Report, the “6 C’s” influence the choice of payment instrument by

consumers:

Capability the functional ability to actually undertake a payment

Convenience the ease of use of a payment method

Coverage how widely a payment method or system is accepted by merchants and other recipients of payments

Confidence the users’ belief that a payment will be successfully executed and completed

Confidentiality concerns about the creation and release of information about the payer

Cost the cost to the payer and recipient of using the product

Clearly Australian consumers saw a strong value proposition in contactless card

payments, possibly around “Convenience,” and felt that it passed muster on the other

factors. The adoption of contactless payments is pushing down the average transaction

value (ATV) in credit cards, due to its use in lower value transactions, as shown in the

chart below.

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Figure 8.2: Annual Number of Transactions, Contactless vs. Total (millions)

Indeed, mathematically, the additional 6.56 transactions per account between December

2012 and 2013 must have been at an average of $60.49 each, less than half the average

ATV seen in December 2012.

Back in 2005, when consumer research was undertaken for the DCITA Report, cash

outscored all other payment methods on the six C’s. Since that time, however, it appears

that other forms of payment have improved their rankings on these factors, and cash

usage is now being displaced.

In addition to the continued adoption of card payments, including contactless open-loop

cards, a myriad of factors are attacking cash, including:

• The removal of toll booths on roads/tunnels/bridges and the growth in eTags;

• The cardification of parking meters & unattended terminals/kiosks;

• The introduction of mass transit eTicketing (albeit different systems in different

Australian cities);

• The growth in online shopping (where cash cannot be used);

• The introduction of mobile payments, both for payers and recipients (e.g., mPOS).

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In the DCITA Report of 2006, it was noted that a reduction in higher value cash

transactions would be beneficial to the Australian economy, as cash payments were

responsible for over half the estimated cost of making payments (approximately $7.4

billion out of a total of $13.5 billion, as in Table 8.3) and were the lowest cost method of

payment only for payments under about $10 (see Table 8.4).

Table 8.3 Economy-wide costs for different payment types (2005) Settlement type

Payment method

Estimated total cost

per year ($millions)

Approximate cost per

transaction ($)

Indicative cost per $ value transferred

(%) Delayed notification of guaranteed funds

Direct credits 350 – 400 0.45–0.50 0.01–0.02

Direct debits 150 – 200 0.40–0.55 0.01–0.02

Cheques 850 – 900 1.60–1.75 0.05–0.08

Real-time notification of guaranteed funds

Debit cards 650 – 700 0.60–0.65 1.00–1.10

Charge cards 900 – 950 5.65–6.00 3.00–3.20

Credit cards 3100–3200 2.65–2.75 2.00–2.10

Cash payment 7300–7500 0.70–0.80 3.60–4.00

Total 13 300–13 850 Source: DCITA Report 6

Table 8.4 Economy-wide cost of payments: ranking of payment methods by transaction size (2005)

Size of transaction $5 $20 $60 $100 1. Lowest transaction cost Cash Direct entry Direct entry Direct entry

2. Direct entry Debit card Debit card Debit card

3. Debit card12 Cash Cheque Cheque

4. Credit card13 Cheque Credit card Credit card

5. Highest transaction cost Cheque Credit card Cash Cash Source: DCITA Report 6

12 Refers to proprietary bank EFTPOS debit card, not scheme based debit card.

13 Subject to specific merchant arrangements and acceptance at this low transaction amount.

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Hence the relative reduction in cash usage in favour of the growth of electronic payments

that has occurred over the last 8 years should have been beneficial in reducing the

average cost of payments across Australia.

We have built a model of all payment transactions in the Australian economy14, and the

chart below provides our estimates/forecasts of payment transaction volumes and values

by various methods in Australia from 2005 (DCITA data) to today (2013) and over the next

five years.

Figure 8.3: Total payment transaction volume and value by method in Australia

The chart shows that as the total number of payment transactions in the Australian

economy has grown, cash’s share of total payment transactions has declined from 73% in

2005 to 59% in 2013 — a loss of just under 2% of “market share” per year. We are

forecasting this rate of share decline to accelerate over the next few years, with cash’s

share of total payment transactions going from 59% in 2013 to 43% in 2018 — a loss of

14 Including changes in average transaction values and transaction volumes, hence transaction value, each year

across the different methods of payment.

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just over 3% of “market share” per year. It should be pointed out that, although cash has

been the dominant method of payment in the Australian economy in terms of the number

of transactions, cash has always accounted for a very small percentage (~1%) of the value

of payments — as the vast majority of cash transactions are of low value, with our model

using an average transaction value of $16.

As discussed in prior sections, we foresee cash usage undergoing an S-bend decline in

both value and volume of transactions over the next five years.

The acceleration in the displacement of cash is faster when looked at in actual transaction

numbers:

Table 8.4: Number of Cash Transactions by Year

Year Number of Cash Transactions (m) % Change

2005 12,329

2013 11,700 5% decline over eight years

2018 9,368 20% decline over five years

This decline in cash transactions and growth in various forms of electronic payments is

shown in the chart below, where a very gradual reduction in the number of cash

transactions can be seen from 2005 to 2013 and a more rapid decline thereafter

(reflecting the forecasted S-bend effect).

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Figure 8.5: Annual transaction volume by payment method, in Millions

The following chart shows the same year by year data, but on a percentage basis in

relation to the total number of payment transactions. The displacement of cash (and

cheques) by electronic forms of payment is quite clear.

Figure 8.6: Percentage of payment transactions by payment method 2005-2018

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On the basis that cash could have held its same 2013 percentage of transactions through

to 2018, our forecast indicates that $56,551 million in “potential” cash transactions will be

displaced by electronic forms of payment between 2013 and 2018. Our model has

forecast that this cash displacement will be comprised as shown in the charts below.

Figure 8.7: Cumulative Cash Displacement Breakdown (by Dollars), 2014-2018

Figure 8.8: Cumulative Cash Displacement Breakdown (by Percentage), 2014-2018

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We forecast that the majority (68%) of cash displacement through to 2018 will occur due to

card-based payments, encompassing:

• A continuation of the general migration of cash to cards, which has been occurring

for many years;

• The growth in contactless card transactions, both EFTPOS and Scheme, with

further deployment of contactless terminals amongst the merchant base and

continued growth use by Australian cardholders, who appear to have a strong

affinity to the convenience and speed offered by this form of payment; EFTPOS has

indicated that its issuers should be launching contactless chip cards before the end

of 2014;

• The introduction of mPOS devices, which will allow small/infrequent merchants to

accept card payments instead of cash.

Implicit in the charts are the timelines for new activities displacing cash, each of which is

then expected to go through a period of growth; as follows:

Year Status 2014 The start of the issuance and use of contactless EFTPOS and the

deployment of mPOS devices 2015 The real beginning of mobile phones usage for payments, including a

step change in usage when the New Payments Platform comes into use in 2017

2016 The full deployment and adoption of eTicketing, such that little further displacement of cash occurs from this system thereafter

2017 The introduction of the New Payments Platform, covering both mobile (as above) and non-mobile payments

The mPOS displacement of cash is based on the experience of Square in the USA, which

has been that most of their mPOS devices have been adopted by merchants who have

never previously accepted card payments (primarily using cash), including market stall

holders, hobbyists, tradesmen, etc. We are predicting about 200,000 mPOS will be

deployed in the Australian market over the next 6 years or so, bringing the total number of

POS card terminals in the market to more than 1 million.

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Australia is one of the global leaders in the adoption of non-cash payments, as noted by a

recent newspaper article in Australian Banking & Finance.15 We expect Australian

consumers will continue to be at the forefront of usage and adoption of non-cash

payments, as Australians are historically more rapid adopters of new technology and seem

very comfortable in using electronic payments.

There has been a lot of press about Bitcoin in recent times and the anonymity that it

provides to electronic payments, thereby matching a key feature of cash. However,

Bitcoin could be the Napster of money and burn out spectacularly in layers of lawyers and

lawsuits; but, just as Napster normalised “peer to peer” for music content, so Bitcoin could

be the sacrificial harbinger for new ways of doing things.

In the short term, Bitcoin, as an unregulated eCurrency, is going to come up against

significant hostility from Central Banks, with the Indian and Chinese Governments already

taking a position to shut down Bitcoin activity.16

15 “Australia leads in non-cash payments,” Australian Banking and Finance; 17 September 2013;

http://www.australianbankingfinance.com/banking/australia-leads-in-non-cash-payments/

16 Is bitcoin anything more than a passing fad?” The Sydney Morning Herald; 26 November 2013;

http://www.smh.com.au/business/world-business/is-bitcoin-more-than-a-passing-fad-20131126-2y79p.html

mPOS seems to be a significant area of growth, where the mobile payments business model is more straightforward

• Square claims to have 4.2 million merchant accounts in the USA - 3.5 million of these did not previously accept card payments

• Visa estimates 38 million mPOS locations will be in place by 2017 - almost doubling the number of Visa acceptance locations (although some

will cannibalise existing fixed line locations) - by comparison, mPOS locations in 2011 were 4.5m, in 2012 went to 9.5m

• Starbucks are already accepting over 60 million mPOS payments per year

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Mobile and online payments will also be facilitated by the current deployment of payment

buttons and/or eWallets. The PayPal payment button on check-out screens of online

merchants will soon be joined by buttons from Visa (V.me) and MasterCard (MasterPass),

which will aim to both address the security concerns of some consumers about entering

their card number onto a website and improve the speed of check-out process. As noted

above at the beginning of this chapter, payments are “habit forming” and those habits take

time to break/change (especially for people over about 30 years old) - hence the adoption

of new payment methods tends to take a reasonable length of time, with the adoption of

contactless card payments in Australia being the outstanding exception. Nonetheless, the

media tends to pick up on the technology hype and promulgates the belief that change is

rapid, as with the article in the following vignette, which predicts “Wallets could be obsolete

by 2021 as mobile payments take over”.

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“Wallets could be obsolete by 2021 as mobile payments take over” By SmartCompany, March 2014

Mobile payment technology could swipe out the use of traditional wallets in eight years, a Commonwealth Bank of Australia survey finds. After surveying 1024 Australians the bank forecasts that paying with cash or cards could give way to mobile phones by 2021, according to a report in the Australian Financial Review. CBA executive general manager of cards, payments, analytics and retail strategy, Angus Sullivan, told the AFR he thinks a digital or e-wallet will become an important part in people’s lives. “We’re reaching almost to the point of ubiquity around smartphones so I think that’s one big driver,” he said. “You’re also seeing more convergence around technology solutions – the wide scale rollout of contactless terminals in Australia has been a really big tipping point.” The AFR reports that mobile phone payments are growing by around 58.5% a year. Kounta founder and CEO Nick Cloete says he thinks the prediction of 2021 is too cautious and that change will likely happen much sooner. “I most definitely agree with the findings but I’d bring that date forward,” he told SmartCompany. “Most countries like Australia now have such a high mobile phone penetration. Because the future of technology is moving so fast, consumers are demanding that they want to do everything on their phone.” Cloete says with the payment technology his business creates, many businesses are already using it to offer mobile phone payment to customers, but a challenge is building customer awareness in order to increase uptake. He explains that a typical mobile payment works with a customer logging into a payment App on their phone, choosing the business they are in, and allowing it to connect to the retailer’s computer system. “The future of retail online and the future of online is mobile,” he says. However, while Cloete and the CBA are confident about consumer uptake, late last year Reserve Bank of Australia governor Glenn Stevens told an APCA conference that elements of Australia’s payments infrastructure are “a bit dated”. “It is very clear that both individuals and businesses are demanding greater immediacy and greater accessibility in all facets of their day-to-day activities,” Stevens said. “This includes payments.” The results of Accenture’s Consumer Mobile Payments survey from 2013 found that many consumers know that mobile payments are an option, but still do not make them. Once consumers had made a mobile payment, they were much more likely to become converts. Incentives from retailers or businesses also helped take-up rates. Accenture found 60% of consumers who already make mobile payments said they would probably do so more often if they received instant coupons as a result. It also found that 36% said they would hand over personal information in exchange for such rewards, while 46% of users indicated that they would increase payments if offered short-term location-based coupons. Security concerns were found to hold back consumers from taking up mobile phone payments more rapidly. “While the industry is pre-occupied with the technology roll out, consumers are much more concerned about the security, privacy, convenience and value of using their phones to make payments,” Accenture reported.

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8.1. The “Cash Conundrum”

The cash conundrum in Australia is that, just as the amount of cash being used in

everyday transactions is going down, the amount of cash (coins and banknotes) on issue

is increasing. The following tables provide the value and number of the different

denominations of banknotes on issue as at June 30 for each of the last 10 years, as

published by the RBA.

Table 8.9: Banknotes on Issue in Australia ($millions)

At end June $5 $10 $20 $50 $100 Total 2004 533 791 2,533 15,941 14,224 34,022

2005 539 837 2,584 16,740 14,924 35,624 2006 572 857 2,690 18,044 15,903 38,066 2007 591 894 2,846 19,228 16,730 40,289 2008 614 917 2,732 20,111 17,690 42,064 2009 644 954 2,651 23,721 20,117 48,087 2010 673 983 2,653 23,711 20,740 48,760 2011 731 1,010 2,796 24,288 21,234 50,059 2012 737 1,059 2,980 25,663 23,156 53,595 2013 768 1,090 3,089 26,987 25,009 56,943

Table 8.10: Banknotes on Issue in Australia (# millions)

As at 30 June $5 $10 $20 $50 $100 Total 2004 106.6 79.1 126.7 318.8 142.2 773.4

2005 107.8 83.7 129.2 334.8 149.2 804.7 2006 114.4 85.7 134.5 360.9 159.0 854.5 2007 118.2 89.4 142.3 384.6 167.3 901.8 2008 122.8 91.7 136.6 402.2 176.9 930.2 2009 128.8 95.4 132.6 474.4 201.2 1,032.3 2010 134.6 98.3 132.7 474.2 207.4 1,047.2 2011 146.2 101.0 139.8 485.8 212.3 1,085.1 2012 147.4 105.9 149.0 513.3 231.6 1,147.1 2013 153.6 109.0 154.5 539.7 250.1 1,206.9

Hence as at 30 June 2013, there were 1.2 billion Australian banknotes on issue with a

total face value of $56.9 billion. The $50 and $100 banknote denominations together

accounted for 69% of the number of notes on issue and 91% of their value. The value of

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banknotes on issue increased by 6.2% from 2012 to 2013, significantly faster than

Australia’s rate of economic growth, and at the same time as ATM cash withdrawals were

in decline.

Banknotes issued by the Reserve Bank of Australia comprise the vast majority of cash on

issue in Australia, with coins issued by the Royal Australian Mint making up less than 5%

of the total value of cash issued. However, coins are much more numerous. Compared to

the 1.2 billion Australian banknotes on issue, there are estimated to be six billion pieces of

coin in the market — or about 300 pieces per head of Australian population. Of the total

number of coins, about 40% are estimated to be “hoarded,” both for numismatic purposes

(very small numbers) and for “jam jar savings,”17 and about 60% in actual circulation.

Figure 8.11: Value of Cash on Issue (A$ millions)

There was a significant jump in the value of banknotes on issue during 2008 (see chart on

growth rates, below), believed to be in response to the Global Financial Crisis (GFC) and

the desire to ensure that any wavering of confidence in the Australian financial system

17 Primarily 5 and 50 cent pieces.

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would be met with an ability for consumers to readily access cash — as any lack of access

to “cash out” would immediately undermine confidence. However, even removing the

2008 aberration, it is clear that the value of Australian coins and banknotes on issue per

person has grown in recent years well beyond changes in both the Consumer Price Index

and Gross Domestic Product.

Figure 8.12: Growth in Cash On Issue vs. CPI and GDP

When viewed on a per capita basis for the Australian population of all ages, the number of

banknotes on issue seems significantly higher than would be expected from “everyday

experience.” For example, for each man, woman and child there are eleven $100

denomination banknotes on issue, whereas the majority of the public do not use or hold

this denomination (and very few ATMs dispense it); further, for each man, woman and

child there are almost $2,500 of banknotes on issue, whereas the majority of the public

only hold a few hundred dollars of banknotes.

Source: RBA and BIS statistics; 2013 Coins on issue projected

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Table 8.13: Banknotes on Issue in Australia

June 2013 $5 $10 $20 $50 $100 Total

Banknotes on Issue ($million) $768 $1,090 $3,089 $26,987 $25,009 $56,943 Percentage breakdown by value 1% 2% 5% 47% 44% 100% Number of Notes on Issue (#million) 154 109 154 540 250 1,147 Percentage breakdown by number 13% 10% 13% 47% 22% 100% Number of notes per person 6.7 4.7 6.7 23.4 10.9 52.4 $ value of all notes per person $2,473

In fact, a recent RFi study indicates that approximately 90% of consumers keep little to no

emergency cash stored at home.

Figure 8.14: Proportion of Consumers who keep emergency cash at home, Sept 2013

So there is the conundrum of large amounts of cash on issue and an apparent reduction of

cash in everyday payment transactions. There are of course some activities that might

account for this paradox; these would include:

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• Foreign exchange speculation (in cash);

• Gambling;

• The black economy (tax avoidance);

• Illicit activities: drugs, guns, etc.;

• Domestic hoarding;

• Offshore hoarding.

The following section attempts to quantify the cash funds involved in these areas.

Where’s The Money?

If there is around $60 billion of Australian cash on issue, where is it located? It was clear

in our series of industry interviews that this question had occurred to many people, but that

nobody had the answer. We have attempted in the following chart to estimate where the

issued Australian cash is being held, but put this forward more as an “educated guess.”

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Figure 8.15: Cash Inventory Location

Our breakdown of the cash inventory has been based on the following estimates and

hypotheses –

• The value of cash held by Australian banks at their branches and ATMs has been

estimated based on APCA survey data of its members, and the total held in the

banking system from the RBA18. The survey of 29 institutions indicates that on

average, they held $1.4 billion in cash every month across their branches and $1

billion in ATMs. Taking into account the additional financial institutions and ATM

operators not surveyed, and information gained in our interviews, we concluded that

18 RBA Research Discussion Paper entitled “Currency Demand during the Global Financial Crisis: Evidence from

Australia”, January 2013, which quotes the currency holdings of the bank sector at 30 June 2012 as $5.9 billion.

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the value of cash held by all Australian bank branches and ATMs to be $1.8 billion

and $2.0 billion respectively. We estimate a further $2.2 billion to be held in cash

depots, making up a total of $6.0 billion held by the banking system.

• The values of cash held by Overseas Banks and the Foreign Exchange (FX) trade,

and foreign exchange speculators in Australia, were determined from previously

conducted FX studies and interviews conducted with Australian banks. The studies

found that foreign visitors carried $2.5 billion of Australian cash into Australia

annually. Domestically, anecdotal evidence suggests a small group of FX

speculators in Australia make significant value trades by physically exchanging

cash at banks.

• Retail Trade holdings of cash were estimated based on information provided by

Australia Post, Coles and Woolworths. Taking into account their high levels of

efficiency in handling cash compared to other retailers, we developed a valuation of

$1 billion in cash held by businesses engaged in the retail trade. For the remaining

cash held by businesses in the non-retail trade sector, the $2 billion value was

estimated based on only 50% of such businesses handling cash, and an average

cash holding size of $2,000 per business.

• Cash held by consumers for normal expenditure purposes was estimated to be $7.2

billion, based on total cash spending of over $187 billion and consumers holding

two weeks’ worth of cash spending ($313). Cash held for the purposes of gambling

was considered separately from previous trade and normal consumer expenditure

categories, and was calculated to have a value of $1 billion in physical cash, based

on the $18 billion spent on gambling annually according to a 2010 Productivity

Commission paper into gambling.

• The value of cash held in Black Economy (legitimate) activities was derived from a

recent Australian Bureau of Statistics (ABS) report indicating such activity is worth

around $24 billion a year. The majority of this activity would be cash based

transactions for the purposes of tax evasion, but most of the cash would be

accounted for in other categories such as business and consumer expenditure.

Therefore, to estimate the value of the remaining cash, we use the household

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savings rate of around 11% as a base (from ABS studies) and hence valued it at $3

billion.

• The ABS report looking at the Black Economy also estimated the amount of activity

in the illicit drug trade at $6.5 billion per year. In addition, there are illicit trades in

other items such as guns, endangered/exotic animals, etc. According to the

Australia Institute of Criminology, the value of cash being laundered for illicit

activities was $4.5 billion in 2004, allowing for inflation and expansion of these

activities, we estimate around $6 billion of cash is being held for these purposes.

• Finally, hoarding activities accounted for $25 billion of cash on issue. In Australia,

coin hoarding accounts for $1.2 billion (as estimated by the RAM), while estimates

from industry sources suggest that at least 500,000 Australian residents are

“hoarding” significant amounts in banknotes. We have used an average of $20,000

per person being held, calculating out to $10 billion of domestic banknote hoarding.

This leaves a remainder of $15 billion from the total of $60 billion of cash issued; we

believe that the vast majority of this is held in the Offshore “Hoarding” of banknotes.

Our industry interviews indicated that much of this Offshore Hoarding was occurring

in countries within the Asia-Pacific region.

Clearly the black economy causes all legitimate taxpayers to pay more tax than they would

otherwise need to, with businesses using cash in order to avoid one or all of GST, income

tax, PAYG, workers compensation insurance, payroll tax, superannuation contributions,

etc. The Australian Taxation Office has this sector in its sights, as noted by a recent

newspaper article in the Sydney Morning Herald.19

19 “Taxman zeroes in on cash economy,” The Sydney Morning Herald; 17 December 2013;

http://www.smh.com.au/business/taxman-zeroes-in-on-cash-economy-20131216-2zhim.html

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9. Appendix

9.1. Habits

Habits (from Wikipedia)

A habit is a routine of behaviour that is repeated regularly and tends to occur

subconsciously. In the American Journal of Psychology (1903) it is defined in this way: "A

habit, from the standpoint of psychology, is a more or less fixed way of thinking, willing, or

feeling acquired through previous repetition of a mental experience." Habitual behaviour

often goes unnoticed in persons exhibiting it, because a person does not need to engage

in self-analysis when undertaking routine tasks. Habits are sometimes compulsory. The

process by which new behaviours become automatic is habit formation. Old habits are

hard to break and new habits are hard to form because the behavioural patterns we repeat

are imprinted in our neural pathways, but it is possible to form new habits through

repetition.

As behaviours are repeated in a consistent context, there is an incremental increase in the

link between the context and the action. This increases the automaticity of the behaviour

in that context. Features of an automatic behaviour are all or some of: efficiency, lack of

awareness, unintentionality, and uncontrollability.

Habit formation

Habit formation is modelled as an increase in automaticity with number of repetitions up to

an asymptote.

In fact, the habit formation is a slow process. Lally et al. (2010) found the average time for

participants to reach the asymptote of automaticity was 66 days with a range of 18–254

days. Automaticity increases along an asymptotic curve, which is unique to each

individual.

Habits form in three parts: there is the cue, the behaviour, and the reward. The cue would

be the thing that causes your habit to come about; the trigger to your habit. This could be

anything that your mind associates with that habit and you will automatically let a habit

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come to the surface. The behaviour is the actual habit that you are exhibiting and the

reward is your brain liking it therefor continuing the “habit loop.” A habit may initially be

triggered by a goal, but over time that goal becomes less necessary and the habit

becomes more innate.

Habits and goals

The habit–goal interface is constrained by the particular manner in which habits are

learned and represented in memory. Specifically, the associative learning underlying

habits is characterised by the slow, incremental accrual of information over time in

procedural memory. Habits can either benefit or hurt the goals a person sets for

themselves.

Goals guide habits by providing the initial outcome-oriented motivation for response

repetition. In this sense, habits are often a trace of past goal pursuit. Although, when a

habit forces one action, but a conscious goal pushes for another action, an oppositional

context occurs. When the habit prevails over the conscious goal a capture error has taken

place.

Behaviour prediction is also derived from goals. Behaviour prediction is to acknowledge a

habit will form, but in order to form that habit, a goal must have been initially present. The

influence of goals on habits is what makes a habit different from other automatic

processes in the mind.

Habits as described by animal behaviour experiments

The following is from a Scientific American MIND Guest Blog post called “Should Habits or

Goals Direct Your Life? It Depends.”

"A series of elegant experiments conducted by Anthony Dickinson and colleagues in the

early 1980s at the University of Cambridge in England clearly exposes the behavioural

differences between goal-directed and habitual processes. Basically, in the training

phase, a rat was trained to press a lever in order to receive some food. Then, in a second

phase, the rat was placed in a different cage without a lever and was given the food, but it

was made ill whenever it ate the food. This caused the rat to “devalue” the food, because

it associated the food with being ill, without directly associating the action of pressing the

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lever with being ill. Finally, in the test phase, the rat was placed in the original cage with

the lever. (To prevent additional learning, no food was delivered in the test phase.) Rats

that had undergone an extensive training phase continued to press the lever in the test

phase even though the food was devalued; their behaviour was called habitual. Rats that

had undergone a moderate training phase did not, and their behaviour was called goal-

directed. ... Goal-directed behaviour is explained by the rat using an explicit prediction of

the consequence, or outcome, of an action to select that action. If the rat wants the food,

it presses the lever, because it predicts that pressing the lever will deliver the food. If the

food has been devalued, the rat will not press the lever. Habitual behaviour is explained by

a strong association between an action and the situation from which the action was

executed. The rat presses the lever when it sees the lever, not because of the predicted

outcome."

__________________

A significant number of scientific references on human behaviour and habits are provided

by Wikipedia at http://en.wikipedia.org/wiki/Habit. In addition, Professor Jeffrey

Brantingham in the Anthropology Department at UCLA (and many other academics) has

written numerous papers on behaviour patterns.

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9.2. Sweden Case Study

Stockholm homeless accept credit cards as cash king no more The Independent, 29 October 2013 Stockholm's homeless magazine vendors no longer need to ask if you can spare any krona. They take cards.

In the most cashless society on the planet, the sellers of Situation Stockholm, a culture magazine sold by homeless people, were last month equipped with card readers to accept donations from fellow Swedes. The move marks a world first, according to their employer.

“More and more of our sellers come in and say that people don't have cash — they have told us this for a long time,” Pia Stolt, the magazine's chief executive officer, said in a telephone interview. “This becomes frustrating, but now they feel they offer an opportunity to buy the paper.”

A stable financial system and a tech-savvy population have encouraged Swedes to favor devices over cash in a country that printed Europe's first banknotes in 1661. Bills and coins represented just 2.7% of the Swedish economy in 2012, compared with an average of 9.8% in the euro area and 7.2% in the U.S., according to the Bank for International Settlements. Many Swedes think that figure is still too high.

“We could and should be the first cashless society in the world,” Bjoern Ulvaeus, a former member of Abba, says on the website of a Stockholm museum dedicated to the Swedish band.

Situation Stockholm, which costs 50 kronor ($8) and whose cover stories have featured Swedish celebrities such as pop star Robyn and actress Noomi Rapace, already can be bought via a text-message service. By using card readers supplied by Swedish mobile-payments company iZettle, the magazine is seeking to accelerate sales growth.

“This will make it easier to sell the paper and I also think this changes a little the image that people have of our sellers,” who get to keep 50% of the money they take from selling the magazine, Stolt said. The response from both customers and vendors has been “very positive,” she said.

Five of Situation Stockholm's 350 vendors are using the new equipment and the publication plans to introduce the devices on a broader scale after its initial trial led to increased sales.

“Before, everyone said they don't have cash, or that they cannot pay with their mobile phones because it was a corporate phone. But now they can't get away,” magazine vendor Stefan Wikberg said with a smile as he stood outside the underground entrance at Stockholm's central station. “I take cards, SMS payments, cash and they can also pay in dollars and euros.”

Wikberg, who has worked for Situation Stockholm since 1999, forecasts that sales of the magazine could jump 20% as the card-payment program is rolled out further.

Some Swedish retailers have already made cash a thing of the past, including bedding seller Kungsaengen, mobile phone chain 3 and phone company TeliaSonera.

Cards are also the only form of payment at Abba The Museum, where Ulvaeus is a co-investor. Less than 1% of visitors at the tourist destination don't have a form of plastic money when they arrive at the entrance, the composer wrote in an Oct. 22 opinion piece in Dagens Industri newspaper.

(continued…)

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(continued…)

Ulvaeus — whose hits with Abba included the song “Money, Money, Money” — lived for a year without coins and notes and said the only inconvenience he found “was that you need a coin to borrow a trolley at the supermarket.”

While it is common even for big international retailers such as Ikea and Metro's Saturn not to accept MasterCard or Visa in Germany, cash is used in only 30% of Sweden's shop transactions, according to the Swedish Trade Federation.

SEB, Swedbank and Nordea Bank, three of Sweden's four largest banks, have all stopped manual cash-handling services in 65% to 75% of their local branches as Swedes instead rely on credit cards, the Internet and mobile phones to make their payments. Only Svenska Handelsbanken still has cash handling in all its Swedish branches.

“Changing customer behavior has resulted in a long-term trend with less cash usage and more card usage,” Swedbank said in an Oct. 22 earnings report. On a rolling 12-month basis, the number of ATM transactions decreased by 11% and the total value of withdrawals fell by 7%, according to the bank. The number of card purchases in stores rose by 11%.

The popularity of paying by card in Sweden reflects both a love of technology among the country's consumers and trust in the financial system, according to Bengt Nilervall, head of payments at the Swedish Trade Federation.

Situation Stockholm was initially concerned that Swedes would be hesitant to use a card on the street.

“This was one of the things we were wondering about — how safe people would feel with iZettle and this box — but they do,” CEO Stolt said. “Now we will reach people who actually never carry cash.” Copyright Washington Post/Bloomberg News 2013

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10. Technical Appendix

The purpose of this Technical Appendix is to provide APCA and its members:

• more granular detail of the payments model on which the forecasts are based;

• a longer term forecast of payment volumes and values, beyond 2018;

• further graphical output, providing both absolutes and percentages across the different

payment methods.

Year Number of Cash Transactions (m) % Change

2005 12,329 2013 11,700 5% decline over eight years 2018 9,368 20% decline over five years 2023 7,788 17% decline over five years 2028 6,896 11% decline over five years

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-

5,000

10,000

15,000

20,000

25,000

2005 2013 2018

Num

ber o

f Tra

nsac

tions

(Milli

ons)

Total Transaction Volume by Payment Method in Australia

Cash Cheque Credit & Charge Card Debit Card Direct Entry

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

2005 2013 2018

Valu

e of

Tra

nsac

tions

($ M

illion

s)

Total Transaction Value by Payment Method in Australia

Cash Cheque Credit & Charge Card Debit Card Direct Entry

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-

5,000

10,000

15,000

20,000

25,000

30,000

2005 2013 2018 2023 2028

Num

ber o

f Tra

nsac

tions

(Milli

ons)

Total Transaction Volume by Payment Method in Australia

Cash Cheque Credit & Charge Card Debit Card Direct Entry

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2005 2013 2018 2023 2028

Valu

e of

Tra

nsac

tions

($ M

illion

s)

Total Transaction Value by Payment Method in Australia

Cash Cheque Credit & Charge Card Debit Card Direct Entry

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2013 2018 2023 2028

Percentage Transaction Volume by Payment Method in Australia

Cash Cheque Credit & Charge Card Debit Card Direct Entry

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2013 2018 2023 2028

Percentage Transaction Value by Payment Method in Australia

Cash Cheque Credit & Charge Card Debit Card Direct Entry

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507 209 1,662 2,774 1,194

1,857 1,147

3,189

12,329

11,700

-

5,000

10,000

15,000

20,000

25,000

2005 2013

Total Transaction Volume (millions) in Australia

Cheque Direct Entry Credit & Charge Cards Debit Cards Cash

1,679,223 1,196,971

7,900,394

13,254,226

163,710

263,721

78,223

197,643

203,113

187,193

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

2005 2013

Total Transaction Value ($m) in Australia

Cheque Direct Entry Credit & Charge Cards Debit Cards Cash

98

-

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Num

ber o

f Tra

nsac

tions

(Milli

ons)

Annual number of transactions by payment method

Cash Cheque Credit & Charge Card Debit Card Direct Debit Direct Credit

99

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Num

ber o

f Tra

nsac

tions

(Milli

ons)

Annual number of transactions by payment method

Cash Cheque Credit & Charge Card Debit Card Direct Debit Direct Credit

100

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Transaction volume percentages by payment method

Cash Cheque Credit & Charge Card Debit Card Direct Debit Direct Credit

101

Model of payment transactions by payment method in Australia All cash numbers are estimates, with actuals shown for the other payment methods through to 2013.

Number of Transactions (M) in Australia [%tages refer to Year On Year growth rate]

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Cash 12,329 12,250 12,172 12,095 12,017 11,941 11,864 11,789 11,700 11,233 10,600 10,000 9,600 9,368 9,274 9,181 8,814 8,285 7,788 7,477 7,327 7,180 7,037 6,896 % -1% -1% -1% -1% -1% -1% -1% -1% -4% -6% -6% -4% -2% -1% -1% -4% -6% -6% -4% -2% -2% -2% -2%

Cheque 507 467 437 395 351 311 275 241 209 175 145 120 100 85 68 54 38 - - - - - - - % -8% -6% -10% -11% -12% -12% -12% -13% -16% -17% -17% -17% -15% -20% -20% -30% -100% - - - - - -

Credit & Charge

Card 1,194 1,276 1,342 1,427 1,471 1,557 1,650 1,736 1,857 1,990 2,120 2,245 2,360 2,485 2,585 2,688 2,796 2,907 3,024 3,145 3,270 3,401 3,537 3,679

% 7% 5% 6% 3% 6% 6% 5% 7% 7% 7% 6% 5% 5% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% Debit Card 1,147 1,290 1,423 1,632 1,872 2,123 2,445 2,809 3,189 3,671 4,184 4,770 5,438 6,199 6,819 7,433 8,028 8,509 8,850 9,204 9,572 9,955 10,353 10,767

% 12% 10% 15% 15% 13% 15% 15% 14% 15% 14% 14% 14% 14% 10% 9% 8% 6% 4% 4% 4% 4% 4% 4% Direct Debit 474 501 531 588 622 665 695 722 764 795 826 860 894 930 967 1,006 1,046 1,088 1,131 1,188 1,247 1,309 1,375 1,444

% 6% 6% 11% 6% 7% 5% 4% 6% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 5% 5% 5% 5% 5% Direct Credit 1,188 1,269 1,365 1,489 1,596 1,717 1,847 1,935 2,010 2,130 2,258 2,394 2,537 2,690 2,851 3,022 3,203 3,396 3,565 3,744 3,931 4,127 4,334 4,507

% 7% 8% 9% 7% 8% 8% 5% 4% 6% 6% 6% 6% 6% 6% 6% 6% 6% 5% 5% 5% 5% 5% 4% Total

Transactions

16,838 17,053 17,270 17,625 17,929 18,314 18,776 19,232 19,729 19,994 20,134 20,388 20,929 21,757 22,564 23,384 23,924 24,185 24,358 24,756 25,347 25,973 26,636 27,293

% 1% 1% 2% 2% 2% 3% 2% 3% 1% 1% 1% 3% 4% 4% 4% 2% 1% 1% 2% 2% 2% 3% 2%

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Model of payment values by payment method in Australia All cash figures are estimates, with actuals shown for other payment methods through 2013.

Value of Transactions ($B) in Australia [%tages refer to Year On Year growth rate]

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Cash 203 201 199 197 195 193 191 190 187 180 167 163 154 150 139 138 132 124 109 105 103 101 91 90 % -1% -1% -1% -1% -1% -1% -1% -1% -4% -7% -2% -6% -2% -7% -1% -4% -6% -12% -4% -2% -2% -9% -2%

Cheque 1,679 1,675 1,773 1,773 1,500 1,496 1,346 1,242 1,197 1,015 841 708 590 510 415 381 381 - - - - - - - % 0% 6% 0% -15% 0% -10% -8% -4% -15% -17% -16% -17% -14% -19% -8% 0% -100% - - - - - -

Credit & Charge

Card 164 178 194 214 221 233 246 255 264 277 285 297 309 321 330 340 351 361 372 383 395 408 421 434

% 9% 9% 10% 3% 5% 5% 4% 3% 5% 3% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% Debit Card 78 88 98 112 130 143 160 178 198 224 251 281 315 353 382 409 442 470 478 497 517 528 549 571

% 13% 11% 15% 16% 10% 12% 11% 11% 13% 12% 12% 12% 12% 8% 7% 8% 6% 2% 4% 4% 2% 4% 4% Direct Debit 3,324 3,759 4,284 4,909 4,976 5,057 5,447 5,979 5,710 6,053 6,416 6,801 7,209 7,530 7,832 8,145 8,471 8,810 9,162 9,620 10,101 10,606 11,136 11,693

% 13% 14% 15% 1% 2% 8% 10% -4% 6% 6% 6% 6% 4% 4% 4% 4% 4% 4% 5% 5% 5% 5% 5% Direct Credit 4,577 5,262 6,010 6,841 7,053 6,446 6,689 7,285 7,544 7,695 7,849 8,006 8,166 8,338 8,496 8,764 8,969 9,507 9,626 9,733 9,827 9,905 9,954 10,153

% 15% 14% 14% 3% -9% 4% 9% 4% 2% 2% 2% 2% 2% 2% 3% 2% 6% 1% 1% 1% 1% 0% 2% Total

Transactions

10,025 11,759 13,633 14,211 13,694 13,627 14,687 15,057 15,100 15,443 15,809 16,256 16,742 17,202 17,594 18,176 18,745 19,273 19,747 20,338 20,942 21,548 22,152 22,941

% 17% 16% 4% -4% 0% 8% 3% 0% 2% 2% 3% 3% 3% 2% 3% 3% 3% 2% 3% 3% 3% 3% 4%

103

Model of average transaction value by payment method in Australia All cash figures are estimates, with actuals shown for other payment methods through 2013.

Average Transaction Value ($) in Australia [%tages refer to Year On Year growth rate]

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Cash 16 16 16 16 16 16 16 16 16 16 16 16 16 16 15 15 15 15 14 14 14 14 13 13 % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -6% 0% 0% 0% -7% 0% 0% 0% -7% 0%

Cheque 3,315 3,627 4,211 4,099 4,270 4,566 4,661 5,008 5,718 5,800 5,800 5,900 5,900 6,000 6,100 7,000 10,000 - - - - - - - % 9% 16% -3% 4% 7% 2% 7% 14% 1% 0% 2% 0% 2% 2% 15% 43% -100% - - - - - -

Credit & Charge

Card 137 146 153 154 154 154 151 150 142 139 135 132 131 129 128 127 125 124 123 122 121 120 119 118

% 7% 4% 1% 0% 0% -2% -1% -5% -2% -3% -2% -1% -1% -1% -1% -1% -1% -1% -1% -1% -1% -1% -1% Debit Card 68 72 74 74 73 71 69 67 62 61 60 59 58 57 56 55 55 55 54 54 54 53 53 53

% 6% 2% 1% -1% -3% -2% -3% -8% -2% -2% -2% -2% -2% -2% -2% 0% 0% -2% 0% 0% -2% 0% 0% Direct Debit 7,008 7,976 8,859 8,547 7,854 7,868 8,278 8,105 7,473 7,617 7,763 7,912 8,064 8,100 8,100 8,100 8,100 8,100 8,100 8,100 8,100 8,100 8,100 8,100

% 14% 11% -4% -8% 0% 5% -2% -8% 2% 2% 2% 2% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Direct Credit 3,854 4,409 4,822 4,726 4,233 3,729 3,817 3,807 3,754 3,612 3,476 3,344 3,218 3,100 2,980 2,900 2,800 2,800 2,700 2,600 2,500 2,400 2,297 2,253

% 14% 9% -2% -10% -12% 2% 0% -1% -4% -4% -4% -4% -4% -4% -3% -3% 0% -4% -4% -4% -4% -4% -2%