Recent data shows Australian non-cash activity overtaking cash transactions for the first time. These days almost every economic act other than a small consumer purchase requires an electronic transfer of value through the payment system by card, direct credit, direct debit, BPAY or some other method. This means that the payment system has become to the economy what your arteries and veins are to you – critical for economic health. One might think, then, that keeping the payment system “fit” (that is, secure, efficient and competitive) would be the subject of a well-developed “health plan”. Curiously, in many countries this has not been the case.
Today electronic payments are the norm in Australia. In the direct entry system, there are about 7 million items per day equal to about $45 billion. Employers and governments use direct entry to pay wages and benefits, while individuals use direct entry to pay for goods and services through direct debits and internet banking. These direct entry payments, which include direct credit and direct debit, account for 96 per cent of non-cash value (excluding high value payments) and about one-third of the number of non-cash payments. From these figures, one would suspect that Australians are reasonably prolific users of electronic payments, which stands in contrast to some commentary that Australia is somehow “lagging behind” other countries in this respect.
The introduction of ATM direct charging in March 2009 has been one of the more public experiments in consumer behaviour within Australian retail payments. With three and a half years of statistics now available, we are developing a clearer view of its impact. On the supply side, direct charging has accompanied a rise in the number of ATMs. There were 25,000 ATMs in Australia in mid-2008 and now there are over 30,000. Despite more ATMs, direct charging has also seen a contraction in the number of withdrawals, with a drop by about 30 million withdrawals between 2008-09 and 2009-10. While this decline coincides with the GFC, the average withdrawal amount rose slightly during this period - suggesting slightly fewer but slightly larger withdrawals from ATMs as a response to direct charging.
In September of this year, Peter Mair’s submission to the RBA Innovation Review Conclusions created a surprising media splash. Mr Mair, a former RBA official and current finance media commentator, suggested significant and widespread hoarding of $50 and $100 banknotes by older Australians. In the media frenzy that followed, Mr Mair further suggested that “the average pensioner couple could hold up to $50,000 in undeclared $50 and $100 notes to get access to the pension.” Not surprisingly, these comments set off a media firestorm. The Minister of Finance Penny Wong commented, responding, somewhat tongue in cheek, that she hadn’t been looking under any pensioner’s bed for cash! The coverage raises the issue of high denomination banknotes in Australia. Are we awash in high denomination banknotes in Australia? Is Australia out of line with its international peers? Where are all those $100 notes and what are they being used for?
The publication of the Reserve Bank’s Conclusions for its two year Innovation Review is shaping up as the catalyst for a new round of structural evolution in the Australian payments system. Payment participants have been set a challenge: establish a better long-term payments platform. Doubtless, effective coordination of industry participants is needed to meet the challenge. Nevertheless, it will be good old-fashioned competition that delivers the new products that ultimately benefit customers. Bluntly, new payment systems only take off when schemes and participants work out how to use them to offer stuff that customers want, and will pay for.