“The challenge with cash is that it really does have a big community public service sort of aura attached to it.”
The Reserve Bank of Australia’s new governor, Michele Bullock, just said the quiet part out loud in the rapidly intensifying war against cash. Speaking at the Australian Payments Network Summit last Tuesday (Dec 12), she was asked whether it’s perhaps time for retailers to stop offering cash as a fee-free payment option to consumers. Bullock responded by pointing out that as the share of consumer payments made using cash has declined, the running costs of processing cash for banks and businesses are mounting. As such, she said, it may be necessary some day to begin charging people for using cash in retail settings:
The issue with cash has always been that businesses don’t really understand the costs of cash in their business. They are at the moment, I think, understanding it a bit more, but in the past they haven’t really. They call “shrinkage” their main cost, which is basically theft, but really they haven’t internalised the cost of processing cash.
The challenge with cash is that it really does have a big community public service sort of aura attached to it. If you try to charge people to use cash, they’re prepared to pay to get it out of an ATM but if businesses started charging people to use cash, I suspect there’d be a very big backlash. Having said that, it’s also true that as economists we want people to face the prices of using particular services that reflect the cost of those services.
So, at the moment I think we are probably in a position where it’s very difficult to actually enforce payment for cash but it’s going to end up… with the costs being embedded in the cost of the financial institutions that are providing these services and people don’t face them. I think it will be a very big challenge.
This sentence bears repeating:
“The challenge with cash is that it really does have a big community public service sort of aura attached to it.”
“Aura” is a curious choice of words to describe people’s continued attachment to cash, as if there were something almost mystical or magical about it. Another interesting word she uses is “challenge,” which in this context I take to mean “problem.” In other words (and this is merely my reading of what she said), the apparent problem with cash is that it is widely perceived to serve the community and the public at large. Yet those are the exact same interests the governor of Australia’s central bank is supposed to be serving, says LNP Senator Gerard Rennick, a former banker who initiated and sits on a Senate committee conducting an inquiry into bank closures:
It’s legal tender and that’s just absurd to say you should pay fees… She should be representing the interests of the Australian people. This is the problem of having a so-called independent reserve bank, that over the years it has shifted its focus from protecting the people to protecting the banks. The RBA is technically saying the banks don’t have a social licence whatsoever and that’s not on.
Judging by the backlash her comments have already triggered, including on social media and even in parts of the mainstream media, Bullock is clearly right about one thing: an important part of the Australian public is still emotionally and financially attached to cash, even though they may not be using it as much as before, and the mere idea of paying extra fees to use a form of money that has existed for millennia would be anathema to them. The national broadcaster ABC posted a number of readers’ comments on its website, including the following three:
Business owner here, instead of a cash surcharge, we need a government option for card transactions, to keep those lower. Operators like Square and Stripe are getting away with charging 2.75% and traditional banks are racing to increase their fees to catch up (we have gone from 0.9% to 1.19% which doesn’t sound large until you remember that it is a 20% increase!). If cash is erased from the arena, you can bet the card transactions will keep getting more and more expensive when the cost associated decreases.* Government needs to step in before the price gorging gets out of hand.
– Rob
We taught our children from a very young age the value of money by paying them in cash for chores, good grades, etc. They would then go and deposit that money at a bank branch and have watched their savings grow. They certainly have a greater appreciation of money and how to manage it via the cash in hand approach, rather than paying them via a banking app. Forms of cash have been around for 5000 years and society shouldn’t be paying a premium to use a physical currency.
– Mark
One reason cash transactions have dropped is that there are fewer opportunities to pull cash out of your account and supermarkets, big box stores and other locations have shifting towards card only payment options.
– Alex
This is a key point. As the financial analyst, author and pro-cash activist Brett Scott noted in a 2018 article for The Guardian, when the big banks announce branch closures and shut ATMs, they create a feedback loop that constantly reinforces the impression that people are turning their back on cash when, in actual fact, banks are making it harder and harder for them to access it:
In closing down their branches, or withdrawing their cash machines, they make it harder for me to use those services. I am much more likely to “choose” a digital option if the banks deliberately make it harder for me to choose a non-digital option.
In behavioural economics this is referred to as “nudging”. If a powerful institution wants to make people choose a certain thing, the best strategy is to make it difficult to choose the alternative.
Financial institutions… are trying to nudge us towards a cashless society and digital banking. The true motive is corporate profit. Payments companies such as Visa and Mastercard want to increase the volume of digital payments services they sell, while banks want to cut costs. The nudge requires two parts. First, they must increase the inconvenience of cash, ATMs and branches. Second, they must vigorously promote the alternative. They seek to make people “learn” that they want digital, and then “choose” it.
Australia’s “Big Four” banks — Commonwealth Bank of Australia, Westpac Banking Corporation, ANZ Group Holdings Ltd, and National Australia Bank Ltd — were recently able to claim yet another major victory in their war of attrition against physical money. More than a billion dollars worth of physical cash disappeared from circulation in the last financial year, marking the first time the number of notes in circulation officially declined since dollars and cents were introduced in 1966. According to Channel Nine News, this is the “strongest sign yet” that Australia is truly on its way to becoming a cashless society.
The pandemic has, of course, intensified this trend. While changing demographics and consumer behaviour have also played a key role, so too has the increased difficulty of accessing and using cash…
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Nick Corbishley 