Blog – Maddern Financial Advisers

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Cashless society: two sides to every coin
Team Maddern
21/Nov/2018

Australia is hurtling towards being a cashless society at a startling rate, with some pointing out that if the current trend were to continue it could be as soon as 2022.i

Though most would agree it’s unlikely that cash will be completely eliminated by then, there’s no doubt the move towards electronic fund transfers is accelerating. Such rapid societal shifts affect everyone. And while there are many positives in the move away from cash transactions, there are two sides to every coin – so it’s worthwhile discussing all the implications of this shift for both businesses and consumers.

What’s causing the shift

Technological advancement and consumer choice are the main drivers behind the shift towards electronic payments.

The banking sector and government are moving things along too. You need look no further than the recently created New Payments Platform, which makes instant money transfers possible regardless of provider, supporting consumers to do away with notes and coins. Or the announcement in the 2017-18 Budget that the Federal Government will ban cash transactions in excess of $10,000.

It’s easy to see why. Removing cash would add an estimated $5 billion to federal coffers, by deeply undercutting people’s ability to avoid tax. Banks too are encouraging the change as money held with them is money they can invest.ii

Implications for business

If you’re a regular at any fast-paced lunch-spot, you’ll know that these businesses thrive on being able to turn a sale quickly. Cash is clumsy. Tap and go on the other hand is almost instant. Electronic transactions also make it easier to track consumer habits and thus tailor products accordingly.

On the flip side, every card transaction does incur a fee for the business, however companies are increasingly happy to absorb the cost given the other benefits. New laws introduced in 2017 mean businesses can only charge the customer what it actually cost them to process the transaction, rather than setting minimum spends, or flat credit card usage fees – a win for consumers.iii

Pros and cons for consumers

The most obvious benefit of EFT is its convenience. From being able to transfer a friend money for dinner instantaneously, to paying your bills while you’re on the train, the evolution of online banking and the development of advanced banking apps has given consumers the freedom they desire. And it seems that they are voting with their feet with visits to the ATM experiencing a 33% decrease over the last ten years.iv

But with freedom comes temptation. Online shopping and tap and go payments make it easy to forget you’re spending money at all. Not only have credit card payments been on the rise, but studies have indicated consumers are willing to spend up to 83% more on an item when paying on plastic over cash.v

Psychologists call this ‘salience theory’. The tangibility of cash means we have greater emotional attachment to it, whereas we can delay the impact of a payment on a card and group transactions into one lump sum making the individual purchase feel less significant.

Where technology has presented problems it has also provided solutions. Most banking apps now sort all electronic transfers by category making it easier than ever to figure out where you’re spending your money, and tailor your budget accordingly. If you want to get even more bang for your buck, there are many sophisticated online budgeting tools now available. Even enabling push notifications on your banking apps that confirm and categorise your purchases can help make them feel more real, and discourage reckless spending.

Looking ahead

Creating good habits now around online and electronic spending could help your bottom line in the long run. While it’s clear that there are benefits and challenges inherent in the move away from cash, its decline looks set to continue. If you or someone you know would like to learn more about how to create better money habits, please feel free to give us a call.

https://www.bambora.com/en/au/blog/will-australiago- cashless/

ii https://www.afr.com/opinion/columnists/how-to-makeaustralia- cashless-by-2020-20180111-h0gngw

iii http://www.abc.net.au/news/2017-08-31/eftposcredit- card-excessive-surcharges-banned-acrossaustralia/ 8859100

iv https://thenewdaily.com.au/money/financenews/ 2018/07/01/australia-cashless-society/

https://www.valuepenguin.com/credit-cards/creditcard- spending-studies