Cash is disappearing at a rapid pace – should we be worried?

You don’t have to be a genius to see that the use of cash in Australia is diminishing at a furious pace.

Phones, watches and cards are now dominating the payments field and internet banking and direct debits seem to be doing most of the remaining heavy lifting.

Cheques, once the backbone of the payments system, are now on borrowed time, set to be phased out by 2030.

Banks are certainly pushing the end of cash, with the closure of many country branches leaving large areas with only ATM’s and the internet to do banking while the introduction of many “cash free” branches that offer loans is a notable sign of their enthusiasm to get rid of expensive and labour-intensive transactions.

However, our love affair with technology is also to blame and apart from some older customers, there has been a remarkable lack of push back against the demise of cash.

COVID led some businesses to ditch cash

Some businesses – emboldened by the experience of the COVID pandemic when cash use was discouraged – have even gone cash free in some outlets, with only a small online backlash which they might be happy to wear if it removes the expense and security nightmare of cash deliveries and deposits.

With banks and many businesses pushing for the end of cash, it could be one of those epochal changes that sneaks up on us rather than being widely debated or even discussed by Government.

Most of the opposition has come from those who are not fans of the lack of privacy brought on by the rapid demise of cash or those in country areas who feel like their banking system is now much more fragile and can fail altogether if the internet or the EFTPOS system fails.

Does cash only have five years left?

Some have predicted the total demise of cash could be as little as five years away, which seems fast but may be on the cards if the percentage of payments made by cash continue to fall at the current rate.

Reserve Bank figures show that cash accounted for just 13% of all payments made in 2022, down from 27% in 2019 and no doubt even lower by now.

More than a billion dollars of physical cash fell from money in circulation in the last financial year, reversing the trend to cash hoarding which happened during the early COVID period.

During the COVID period, cash was seen as the unhealthy alternative and tap and go payments grew rapidly, which greatly accelerated the demise of cash payments.

A $40 discount for ditching cash?

There are certainly costs to continuing with cash, with the chief executive of Commonwealth Bank, Matt Comyn, estimating that each bank customer pays $40 a year – whether they use physical cash or not – to keep the bank’s tills full of money.

He was appearing before a Senate inquiry into regional bank closures, amid accusations the banks are abandoning country Australia.

The Financial Sector Union (FSU) claims that Australians in regional and rural Australia have been hit hard, with an estimated 650 bank branch closures overall since the start of 2022.

Mr Comyn said the cost of running Commonwealth Bank’s remaining 728 branches was $1 billion a year, which was becoming increasingly unsustainable as customer demand for cash diminished.

“We estimate that continuing to support distribution and availability of cash costs CBA approximately $400 million each year — which works out to roughly $40 for every one of our 10 million customers.

“Many of our customers don’t use cash though — and these customers cross-subsidise those that do.”

“Five years ago, 43% of all point-of-sale transactions were cash,” he said.

Customers voting with their phones

Mr Comyn said Commonwealth had no plans to take cash out of branches “in the foreseeable future” but other bank bosses gave evidence that non-cash transactions had become absolutely dominant.

Westpac chief Peter King said 96% of customer transactions were now digital, while NAB chief Ross McEwan said his bank was running at 93% of transactions.

ANZ chief Shayne Elliot said more than 90% of the bank’s customers aged over 65 “use at least one self-service option to do their banking, such as our ANZ app, internet banking or ATMs”.

“While most customers prefer digital channels for many of their transactions, branches continue to be important,” Mr Elliot said.

How would a cashless society work?

Bearing these trends in mind, should we be worried about the demise of cash and what sort of problems would a cashless society raise?

One of the many criticisms of going cashless is that some members of the community will be left behind, with the aged and those with disabilities some of the most frequently mentioned.

It is also obviously difficult for many elderly people to cope without cash – some of them may not even have access to or familiarity with modern internet banking or smartphones.

Also, the demise of cash is obviously bad for employment in many areas – from bank tellers to armoured car drivers, Australia Post outlets and people who fill ATM’s.

Another issue with the end of cash are the growing security risks such as cyber scams and other forms of cybercrime.

Savings lessons will be hard to learn without physical cash

However, from a financial planning perspective, I think the biggest change will be the lack of a physical interaction with cash.

When you think about it, most of life’s most valuable money lessons have originally been learned from physical cash – from saving using a money box to budgeting using envelopes or jars.

Even saving using a school bank account is based on small cash deposits plus interest mounting up over time to hit a specific savings target.

These are the sort of hands-on lessons about the value of money that may be difficult to repeat if cash is entirely replaced by electronic transfers.

We all know instinctively that parting with cash is much easier with a tap of the phone than actually going through with spending cash out of your purse or wallet.

That is why some financial experts recommend going back to using only physical cash for people who are struggling to keep to a budget as a way of re-learning valuable money lessons.

Perhaps the key to establishing the value of money in the absence of actual cash is to “virtualise” and automate these life lessons into electronic piggy-banks or target savings accounts that produce both digital and monetary rewards.

It is an approach that is being tried by Up bank and several other online neobanks that don’t have physical branches and are trying to appeal to younger generations.

Given the speed with which cash is disappearing, we had better hope that their ideas to promote savings and understanding of the value of money are successful.