In late February, the Governor of the Reserve Bank of Australia (RBA) gave evidence to the Economics Committee of the Australian Parliament – see sidebar. At the time, press reports interpreted her remarks as suggesting cash will be gone in ten years. Matt Sykes, of CPT group 1, has published his thoughts on the actual state of cash in Australia based on available data.
Australia’s cash cycle is typical of most advanced economies. Without direct access to point-of-sale (POS) data from retailers and others, cash withdrawals are the best way to get a picture of cash usage. In addition, the RBA runs a consumer payments study every three years (one is due this year) and issues monthly payments statistics and monetary aggregate statistics. AusPayNet issues device statistics.
Consumer payments data shows a change in the usage of cash as a percentage of the value of payments from 38% in 2007 to 8% in 2022 – a drop of 30% or a reduction of share of nearly 80%. Debit and credit cards overtook cash in 2013, and the survey suggests that cash usage by value is equal to payments made through BPAY in 2022.
Consumer payments data: People who use a lot of cash, high cash users, use cash for over 80% of payments. Their number has fallen from over 40% in 2007 to under 10% in 2022, while the number of low cash users, those making under 20% of payments by cash, increased from less than 10% in 2007 to over 70% in 2022. The most common responses to why consumers need to use cash include privacy and security concerns, merchants only accepting cash, and budgeting.
Payment statistics: ATM withdrawals and POS cash outs/advances peaked in December 2008, when A$16 billion was withdrawn. From then until the start of COVID, cash fell on average by 1.9% a year. The net change of pre- and post- COVID was down 20.2%, although cash has been remarkably stable since then.
The number of withdrawals continues to fall, but the value is stable/grown on average by 1.7% a year.
The role of cash is reducing. In 2017 cash withdrawals made up 22% of withdrawals and card payments. Adding consumer recycling, cash made up between 24% and 35% of payments.
By 2024 the cash withdrawal share had dropped to 10%, while the payment share likely sat between 11% and 18%.
Despite the stability of cash withdrawals over the three years since COVID lockdowns ended, the role of cash continues to change – not because it is reducing, but because use of other payments continues to increase.
In person payments are, perhaps, the most important measure of cash, given that cash is not designed for the online economy. The most ‘like for like’ measure of cash is, therefore, a comparison against device-present card payments. This analysis is the most relevant for understanding the incidence, prevalence and trend of cash usage in a retail environment.
This view of cash gives quite a different picture. While the cash proportion has declined, the change is nowhere near that of overall payments. The comparative numbers are:
The velocity of cash shows how many times currency in circulation circulates through the economy. It is the same conceptual measure as inventory turnover in a retail business. However, in this case, rather than being multiples, it is a proportion of stock.
This analysis shows that some 38% of currency in circulation was withdrawn per month in 2008, while it is currently – and has been since 2022 – around 10%. This points to two considerations.
A. The velocity of cash is reducing.
B. When taken alongside withdrawal (activity) data, currency in circulation continued to grow across the period 2008- 2019 beyond what was needed in the economy.
There is no commonly agreed benchmark data or ideal target for the velocity of cash since this would be dependent on market, usage, and even geographic considerations. CPT suggests that a 10% velocity appears to be low, as it suggests stock holdings across the system of 10x more than is needed. This may be reflective of over-holding in distributed networks (retail shops, branches and ATMs), in cash centres, with the RBA, or with some combination of these.
While the average value withdrawn from ATMs has declined by around 28% over the long term, since COVID it has been increasing , pointing to increased utilisation rates of network devices.
The average value processed through Electronic Fund Transfer POS terminals has continued to grow at a steady rate, which is consistent with the broader payments data.
While ATM numbers across Australia have been declining, there continues to be a substantial, country-wide network. The mix of free to use and fee paying ATMs has fallen from 40% in 2019 to 23% in 2024. In the last quarter of 2024 ATM numbers grew, though this may be a once-off increase.
Referred to as the flywheel effect of cash, the non-linear relationship between costs and volumes, driven by the high fixed costs of the cash cycle, means that the unit cost of cash changes in a multiplicative – even exponential – manner, and it is carried by retailers and banks and ATM operators.
While the cash cycle in Australia is under strain, there is no indication that cash will disappear in the medium term, perhaps even the long term, based on current trends. There may be a cashless society in the future, but if there is it is a long way off. This being the case, transformation of the entire cash cycle is a priority. The short term challenges reported in the media are indicative of a system that, if it is not broken, it is certainly sub-optimal.
Australia is one of a number of countries with proportionately low cash usage. The governor referenced the decline in cash in Scandinavia. However, in contrast to Sweden, Australia’s geographic and demographic situation means it has a relatively unique challenge which requires high urgency if a long term solution is to be structured and implemented.
While the major industry customers could simply solve the problem with money ($50-100 million per year over eight companies for 10 years is a relatively modest sum), this would not address that fact that fundamental changes are needed. These need to be across the cash cycle to support end-user cash usage, and they will ultimately need to touch every participant and component of the cash system – the wholesale cash cycle, the retail cash cycle, commercial models, technology models, operating models.
Australia is now at a point that the cash cycle needs to catch up in order to be fit-for-purpose in the current and future environment.
Earlier this year Michelle Bullock, previously Head or the Reserve Bank of Australia’s (RBA) cash department and now Governor, gave evidence to the Economic Committee of Australia’s Parliament. In the report she said that the banks and the sole CIT company, Linfox Armaguard, have until June to find a way forward. The A$50 million industry support package, given to buy time to improve efficiency and develop other measures to support Linfox Armaguard’s financial position, runs out at that point. The Governor was clear that while the RBA has a ‘very specific role to play… ultimately, we don’t have a role in this retail cash distribution area.’ While June is all about the short term issue of ensuring access to cash continues, the Governor also looked at this in terms of who pays to subsidise cash. ‘If you don’t want the consumers to pay, then someone has to pay, and it’s going to be difficult to figure out how it is subsidised, because that’s what we’re asking for. Normally, what would happen in a circumstance like this is that, if the costs are going up, then people would have to pay more to use it. I think the idea that people pay to use cash would not go down well. That means that, in order to make this particular situation viable, someone is going to have to cross- subsidise consumers in cash.’
Pressed on how the RBA could help, the Governor talked about whether the RBA could expand the interest compensation it pays to the commercial sector for holding cash. She was also asked whether the banks are doing enough to keep branches and ATMs open. While banks have some community service obligations, they also have shareholders. The challenge for the banks is a small (and shrinking) group of customers who aren’t ready or willing to go digital. This creates, ‘a real tension between effectively servicing them at a much higher cost than you’re servicing everyone else, so the bulk of your customers are basically cross-subsidising that much, much smaller group.’ The Governor was asked about the future of cash. Her answer was not reassuring. ‘What’s going to turn it [cash] around?
I don’t think anything is going to turn it around. I think it’s on a long-term decline.’
She then listed some of the advantages and disadvantages of cash and digital payments before saying, ‘so, for all of those reasons, I think that the long-term decline of cash is reasonably inevitable.’
1 - The CPT Group is a highly specialised international consultancy focused on cash cycle transformation and optimisation. It provides strategic, commercial, and operational expertise across the entire cash and payments ecosystem.
