On ropes but not quite done
Cash is on the back foot but phones and cards can't do everything, writes Christine Long.
It's Saturday morning and Sydney is drawing breath. In inner-city Alexandria, young hipsters, couples with tots, and well-preserved over 50s are streaming into Sonoma Bakery to grab their daily sourdough or linger over a cappuccino and buttermilk crumpets. Ahead of me, one of the over 50s pulls out a card to pay for his bread. "PayPass," confirms the assistant. With a contactless card there's no need to sign or enter a pin for a purchase under $100. He's gone before I count to 10.
Next, a woman with a child glued to her side fishes out a $20 bill. Me: I'm using eftpos. It's easier than stopping at an ATM.
Prominent at the point of sale are pink leaflets advertising the latest way for Sonoma fans to pay: PayPal. The bakery has been test-driving a PayPal app, facilitated through its Kount, a point-of-sale system that lets customers check in, order and pay with PayPal via their smartphones. Plenty of people in the queue fiddle with phones, but most reach for a wallet when it comes time to pay. Cash is still far from being off the menu here.
Later John Candi, Sonoma's head of sales and marketing, reports 5000 PayPal transactions were made during the five-month trial at five of its sites, so it plans to keep exploring further developments in the technology. All around Australia, laboratories are experimenting with non-cash payments, raising the question of whether money, as we know it, is history.
Contactless cards - MasterCard's PayPass or Visa's PayWave - can now be used at more than 100,000 terminals from the Melbourne Cricket Ground to Woolies, Bunnings and McDonald's. And making a payment doesn't necessarily involve flashing the plastic any more. Smartphones equipped with "near field communications" (NFC) technology allow users to tap and go at contactless terminals.
Mobile banking, too, is rising rapidly. Users of Commonwealth Bank's Kaching mobile banking app who are so inclined (28 per cent) can make a peer-to-peer payment by simply bumping phones.
The latest? Kaching on Facebook. Launched in March, it allows gift payments to friends without leaving the social-networking site. It's perhaps ironic that in the year Australia is celebrating the bicentenary of the Holey Dollar and the centenary of the first currency note, we are finding evermore ways to bypass cash.
Last year, the Reserve Bank Payments System Board pointed to the "declining reliance on cash", and that for a seventh consecutive year the growth in cash withdrawals was below household consumption. In March, Reserve Bank figures show, we withdrew $12.1 billion from ATMs while total purchases and cash-out transactions using debit cards was $16.6 billion. Australian Payments Clearing Association (APCA) chief executive Chris Hamilton says cash is still the most common way to pay for things at low purchase prices - "the stick of gum or the newspaper". "But if you look at the value of money coming out of ATMs, it's actually started to decline for the first time even as the economy continues to grow."
Despite convenience and widespread acceptance, cash is becoming the fallback solution. "People will routinely expect to use their cards for most things, but cash will be there in case that doesn't work for some reason," Hamilton suggests.
One factor helping to push cash into the background is contactless cards, according to the April HP-RFi Australian Payments Research report. Contactless-card ownership rose from 26 per cent of consumers in September 2011 to 46 per cent in March this year. RFi managing director for Australia and New Zealand, Alan Shields, says as soon as the supermarkets started rolling out contactless terminals "people started using it to a much greater extent".
By March, almost one in three contactless-card users was making purchases with them at least a few times a week, compared with one in five in September 2011. As the table shows, 23 per cent of consumers can now picture a scenario where they would stop using cash entirely. Although, somewhat surprisingly, more than half the consumers aged 18-24 years couldn't see themselves calling time on cash completely, possibly the result of lower incomes and restricted payment options. Reserve Bank research into the use of cash payments published in 2011 suggests it helps people feel in financial control. High among the reasons for choosing cash at the point of sale were using their own funds and managing funds.
A continuing role for cash may also arise out of the seedier side of human nature, as photographer Natasha Caruana will testify. After secretly taking photos and recording conversations on dates with 80 married men, one of her observations was how frequently they used cash. Few wanted telltale signs showing up on financial statements or a receipt. Businesses wanting to avoid paying their dues to the taxman might also resist the end of cash.
While cash still has a strong life force, the future is less bright for the cheque. Cheque use dropped by 12.5 per cent last year and 66 per cent in the past decade. Some accounts offered by financial institutions no longer include a cheque book or allow cheques to be deposited. "I'm expecting that to become more common, and possibly for there to be pricing differences as a consequence of that," Hamilton says. If current trends continue, APCA is expecting cheque use to be a "rarity" by 2018. Its job is to wean people off cheques and make sure they are not left behind in the digital economy. "A very simple example of that is real estate, where someone is putting a deposit down after an auction. It is still not that easy to do it another way," Hamilton says. Various developments are likely to hasten the decline of cheques, including the roll-out of the national broadband network and the introduction of a national collaboration between the banks and land-title offices to automate the flow of value and title to land. Education about electronic payments is also part of enabling the shift.
"It's a slow picture of cultural change but there's no need to rush," Hamilton says. If the cheque is the Hollywood has-been of payments, mobile is the rising star. A big development likely to support the drive to digital is a multimillion-dollar real-time payments system to sit beside the existing electronic payments system by 2016. But people without a smartphone are in danger of being left behind.
About 63 per cent of Australians own a smartphone. Currently, opportunities are limited for those who want to tap and go at contactless terminals. "The issue is, a lot of those smartphones don't have NFC-enabled technology within them," Shields says. Commonwealth Bank Kaching app users can adapt the iPhone 4 or 4S through the purchase of an iCarte case, while a Westpac pilot has relied on adding a NFC tag to a SIM card for use in Android phones.
But MasterCard Australia's head of development and innovation, Matt Barr, says the growth of contactless terminals "puts the infrastructure in place for when mobile turns up".
"When the telcos and the banks get those agreements in place, we think mobile will take off," Barr says. "Obviously a lot of people will have to sign up for new handsets, so there's a natural upgrade life cycle that will need to occur."
In the meantime, RFi reports, mobile phone owners who made payments from a banking app or while shopping online via their phone increased from 24 per cent in March last year to 36 per cent in March this year. Commonwealth Bank now has 1.56 million active mobile banking users, and by November last year its customer usage data showed log-on to banking via smartphones and tablets had overtaken desktop log-ons.
General manager of online banking at Commonwealth Bank, Drew Unsworth, says the bank is seeing 10,000 downloads of Kaching a week, with a group of customers - most likely to be young, single and male - now exclusively using mobile banking. What might act as a barrier to more people moving completely to mobile is a "reconciliation issue", according to Unsworth. "How do you know you've got the money? We need to correct that, so that when you receive the money you know who you got it from and it was easy to get and it was easy to do."
As with any other payment innovation, consumer perceptions about security and privacy can also impact take-up. They are concerns players try to alleviate with security guarantees. How much of a barrier they will prove, only history will show.
From credit cards to ATM payments, innovations have been adopted only when they offer more convenience for the consumer, PayPal spokesman Adrian Christie says. "I think in the next five years we will see more change in payments than we've seen in the last 15 or 20," he says. However, for digital wallets to take off, they have to add value. He rattles off everyday situations where consumers could benefit:
Public transport "You could automatically pay and recharge on your phone."
Getting money off petrol after doing the grocery shopping "You don't need to give them a receipt; they actually have a record that you've already bought the groceries."
Buying a big-ticket item "It might automatically ask you if you'd like to add it to your insurance policy. It takes the digital receipt and stores it alongside your car-insurance policy."