Cash still king despite contactless cards

MONEY: A Two-year study of payment methods shows people are still more likely to use cash over cards for the foreseeable future. Picture: FILE

MONEY: A Two-year study of payment methods shows people are still more likely to use cash over cards for the foreseeable future. Picture: FILE

DESPITE a sudden crash in the use of cash after banks began pushing contactless payments in earnest two years ago, people are still more likely to reach first for notes and coins for the foreseeable future, says a two year study of payment methods.

A survey of Australians' use of 15 different payment options from BPay and eftpos, to credit cards and Bitcoin, since September 2011 shows the use of cash fell sharply in the year to September 2013 from near 90 per cent to 70 per cent of respondents.

But its use has risen slightly again since then, according to the study by Hewlett Packard and consultancy RFi.

Alan Shields, RFi's managing director of advisory, said cash use is being eroded by a plethora of different payment methods as well as more people buying online. But the decline of cash had "plateaued" because small business are reluctant to introduce contactless terminals.

"A lot of the erosion of cash came about as a result of contactless," he said. "When the supermarkets introduced that, it was massively successful."

Commonwealth Bank also lays claim to the sudden adoption of contactless in Australia when it distributed 5 million contactless cards and rolled out terminals to accept them in 2009.

At the moment only Visa and MasterCard offer contactless, but eftpos will soon add its software to chip cards and launch a mobile payments app.

Mr Shields said cash use will decline again when small businesses accept contactless, particularly for low value payments. "The issue there is a lot of newsagents and coffee shops that don't want to accept it."

Little incentive

They have little incentive to do so because many see cash as free to accept, whereas business pays a merchant service fee to banks and card companies when they accept cards. Big retail stores have more sophisticated methods for calculating the real cost of handling cash. They also get big discounts on card merchant service fees due to their high volume of transactions.

Business can charge consumers for using cards, but with contactless, they don't actually know how much they are getting charged for accepting it.

But Mr Shields predicted some form of contactless payment would crack business and consumers' preference for cash for small amounts.

At the moment the closest contender to cash at the small value end is PayPal. It recorded the biggest rise in use from about 29 per cent to 41 per cent between September 2011 and March 2014. This puts it on par now with most other non-cash payment options.

Close to 80 per cent of people surveyed also said they had no minimum spending limit on PayPal, the highest proportion after cash.

But PayPal transactions are mainly online and their merchant service fees are high. "PayPal has really broken the back of becoming a mainstream payments mechanism," he said. "The next hurdle is to convert it to regular usage in the real world."

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