A cashless world would make life harder for tax-dodgers and crims — and cheaper for everyone
“I have a memory of paying for a car in cash, more than $10,000, some years ago,” says tax expert Professor Miranda Stewart. “But it’s pretty hard to see why that would be necessary now.”
The rise of electronic payments in recent years has increasingly rendered the use of cash for significant purchases unnecessary — and, for most, inconvenient.
Unless you want to avoid leaving a trail.
“Cash is difficult to trace, so there’s no record of a cash transaction unless that record is made through other systems,” Stewart tells Crikey. “Clearly that’s attractive for people who want to avoid not just the tax system, but may want to avoid social security income declarations.”
In sectors where staff are commonly paid cash in hand, it also facilitates wage theft.
Recognising these problems, the government has been pursuing a $10,000 cap on cash payments involving a business, recommended by its own Black Economy Taskforce.
Legislation enacting these measures is expected to eventually pass, after it was given the okay by the Senate economics legislation committee in February. The government says it is now considering the committee’s report while it deals with the pandemic.
The Black Economy Taskforce
Seeking to gain a better understanding of crime in Australia, the federal government established the Black Economy Taskforce back in December 2016.
Its report warned that tax evasion meant criminal enterprises could undercut clean businesses. The panel heard of huge, undocumented cash payments used to buy houses, cars, yachts, agricultural crops and commodities.
It argued a large proportion of the nation’s $50 and $100 notes may sit in the black economy, though no-one has any clear idea of just how big that proportion might be, and whether reducing the number of high-value notes in circulation would have any impact on crime.
“The black economy is more diverse, more complex and influenced by a wider range of factors than we first realised,” reported the government’s somewhat surprised taskforce back in 2017.
The report also emphasised that it’s not just organised crime that dodges tax, but many ordinary Australians.
“The traditional view which placed the ‘cash’ and ‘black’ (or criminal) parts of the problem in different categories, leaving the former to tax authorities and the latter to law enforcement, is outmoded.”
Taskforce chair Michael Andrew, who passed away last year, was fond of reminding audiences just how normalised some of these activities are, recalls Stewart, who was on the taskforce’s stakeholder reference group.
“He would ask an audience of tax accountants and lawyers, for example, how do they pay their cleaner? What about when a tradie comes to the door and says they can pay cash and get a discount? And how do they pay their nanny?”
The $10k cap
Two of the big recommendations to come out of the inquiry were a $10,000 limit on cash transactions involving a business, and that wages should be paid into bank accounts. This would promote a fairer economy, says the report:
“Making payments in cash makes it easier for businesses to underreport income, and to offer consumers discounts for transactions that reflect avoided obligations, gaining a competitive advantage over businesses that either cannot or will not offer such discounts.”
It’s hoped that imposing limits on the use of cash even for legitimate businesses would flow up supply chains. A cafe may pay its fruit and vegetable supplier in cash, for example, and that supplier may be involved in nefarious activities. Making those payments electronic can end up “moving all the businesses in the chain increasingly out of the shadows”.
But there has been a surprising amount of resistance to the cash payment cap in particular. The Senate committee examining it recommended a campaign to clear up misunderstandings about the bill, with some community members mistakenly worrying the change would outlaw keeping money under the mattress.
Others expressed objections based on a philosophical right to use cash, the prospect of savers being stung by negative interest rates, or tighter surveillance on citizens. The Senate committee said it “rejects the conspiracy inherent” in some of these objections.
Indeed, it looks like the international trend is not on the objectors’ side, with other countries already going further than Australia. Residents of France are not allowed to make payments of more than €1000 in cash, and the European Commission is considering whether similar rules should be applied across the EU.
India’s experience also demonstrates the need for policy in this area to be carefully designed. Its poorly conceived “demonetisation” policy, aimed at flushing out unexplained wealth, involved banning 500 and 1000 rupee notes. The ensuing chaos is believed to have cost the country more than 1% of GDP and 1.5 million jobs — and even caused several deaths. The impact was even visible in satellite imagery, where night-time lighting was visibly dimmer as a result of lost economic activity.
The other big rationale for reducing reliance on cash is that the alternative is cheaper — despite the fact that businesses are more likely to charge extra to pay by card.
“There is a view that cash is free,” notes the taskforce’s report — but it’s not.
“Businesses dealing in cash incur a range of expenses, including storage, transportation and monitoring costs (given the heightened risk of employee fraud).”
Cash needs to be transported in heavily armoured vans, and businesses need to pay insurance and security costs to keep it safe.
On top of this, with fewer people using cash, the cost per transaction for ATMs is increasing.
While these fees accrue to banks and other commercial entities, they end up influencing the price customers pay.
Some economists also believe moving more of the economy into the banking system may boost the efficacy of monetary policy and improve overall financial stability.
Those left behind
Of course, not everyone is as eager to change as the card-toting millennials.
While over-65s use cash less frequently than they used to, they still made over half of their payments in cash in 2019. Lower income households make more of their payments in cash.
Around 15% of respondents in a Reserve Bank survey used cash for over 80% of their in-person payments last year, while about 10% used cash for all in-person transactions.
The Black Economy Taskforce’s report notes there may need to be special measures for some:
“Recognition that some in our community, including those living in remote communities and the disadvantaged, may not be able to adopt non-cash payment methods. Specific programs might have to be developed for them, if the trend away from cash continues and our recommendations are adopted.”
There are also certain industries we may not want to switch to electronic payments. Currently, casinos and clubs must accept wagers and make payouts in cash. Moving to electronic payments could make life worse for problem gamblers.
Cash is also a failsafe in a time of crisis. A massive cyber attack in Ukraine a few years ago brought down the electronic payments system. Closer to home, January’s bushfires knocked out power and mobile services in some places, leaving cash the only means of paying for petrol or food.
People generally continue to use cash for two main reasons, according to RBA research: personal preference and merchant acceptance. Around one-third cited factors relating to merchant acceptance, fees and pricing. Some people find it easier to budget with cash, or prefer to use their own money (instead of credit) — both common reasons among high cash users.
Additionally, cash has its own value, providing for instantaneous settlement — though improvements in technology are increasingly bridging this gap.
Nonetheless, the Black Economy Taskforce recommended government encourage the shift away from cash.
Apart from the $10,000 transaction limit and requiring wages be paid electronically, it can do this by encouraging competition and innovation in the payment system, while remaining neutral between competing non-cash initiatives, says the report.
The taskforce also suggested incentives for small businesses to adopt entirely non-cash business models, together with a benefit for those who have already taken this step.
Additionally, the government should make further efforts to identify large, undeclared amounts cash moving in and out of the country, including polymer scanning, says the taskforce.
Moving further away from cash “could help limit the scope for the black economy and bring other economic efficiencies and social benefits, including red-tape reductions and reduced business costs,” argues the report.
“We recognise that not everyone is willing to go electronic, and even though social resistance to electronic payments continues to fall, it is on business and government to lead the way.”
Leave your cash at home. Business gets on roll toward a paperless economy
Popping down to the local to grab Roll’d for lunch? Leave your coin purse at home.
The popular Vietnamese food franchise doesn’t want your money — well, at least not your coins and notes.
These days it’s “cashless” payments or nothing at Roll’d, and if chief executive Bao Hoang has anything to say about it, that won’t be changing anytime soon.
“We’ve already gone cashless, and we’ll stay cashless throughout the pandemic,” Hoang says.
“It was always the trend anyway, but now less contact is always going to be better, particularly when we’re talking about COVID-19 without a vaccine.”
That “trend” Hoang refers to is an ongoing process towards an oft-idealised “cashless society”; a perhaps not-too-distant future where metal and paper-based fiat currencies give way to their digital equivalents.
You’ve probably heard this before. The prospective death of paper-based currency has been a recurring prognosis since the invention of EFTPOS in 1981, and last year, Reserve Bank Governor Philip Lowe said it’s easier than ever to envisage the future of cash as a “niche” payment method.
But that was then, this is now. As the coronavirus crisis changes how business is done around the world, economic timelines are being redrawn, and the life expectancy of those notes in your pocket is no exception.
At home, even major supermarkets Coles and Woolworths have declared their preference for tap-and-go payments as they seek to sanitise their operations.
Recently, a survey panel of 1000 consumers published by cashless cheerleaders Mastercard claimed 44% of Aussies have decreased their use of cash since the pandemic began.
Even before the pandemic, Hoang says about 60% of Roll’d transactions were card-based, but by the time a vaccine is available, Hoang expects that figure to rise to at least 80%.
“A lot of businesses will go cashless after this, and we’ll become a much more seamless economy that way,” Hoang predicts.
It is unlikely that cash is going to completely disappear anytime soon, but as businesses start to plan their way out of pandemic trading, the growing influence of cashless payments is already changing the day-to-day lives of small and medium-sized enterprises (SME) owners.
Business-as-unusual in an increasingly cashless world
It’s still not entirely clear what the implications are, but the trend is clear.
In practice, paper money retreated from large parts of the economy ages ago. Businesses seldom clear invoices with wads of $100 notes, and the federal government doesn’t mail bills to small business owners applying for grant programs.
It’s at the retail level, where many SMEs trade, that physical cash has continued in regular use, although even here, uptake of card payment methods has risen rapidly.
This has been the case for some time, according to regular surveys conducted by the Reserve Bank, and as brick-and-mortar stores closed in favour of e-commerce transactions when Australia went into lockdown, the use of cash was curbed even further.
Some welcome the change. There are, after all, a range of benefits to ditching cash payments completely, even if it took something on the scale of a global pandemic to bring it on.
DJ, the owner of longstanding Melbourne Indian restaurant Gaylords, has stopped accepting cash in the wake of the pandemic.
“Taking cash puts all our customers and staff in danger … we just cannot take the chance,” the business owner tells Crikey.
“Most people were using the card system anyway and dealing with cash has always been a difficult challenge.”
DJ says he’s not sure whether cash payments will make a comeback at Gaylords once a vaccine is available, but he welcomes the cashless society with open arms.
“For small businesses a cashless society will be much easier, because you don’t have to deal with closing,” DJ says.
Likewise, Hoang does not reminisce about the decline of cash transactions, saying savings associated with digital payments outweigh the burden of merchant fees for Roll’d franchisees.
“You don’t have to handle cash, and that probably saves you an hour every day,” Hoang says.
Cards are stacked against cash — but Afterpay is going for gold
Cash was already teetering on the brink of oblivion. COVID-19 just kicked it over the edge.
The fear of fomites (viral particles passed via surfaces) has much of Australia paying with anything but physical money these days. Tap-and-go is ascendant.
But the trend has been around longer than the virus. The Reserve Bank has been tracking how we pay for things. As well as the obvious — the near-total demise of cheques — it has seen a huge and rapid shift in payments from cash to cards, as the next graph shows.
Intriguingly, there is still huge demand for $100 notes. There are 361 million of them, more than all $20 notes and $10 notes put together. Demand is so huge that the RBA can’t quite explain where they are going. The best explanation is that many are being hoarded as a store of value, perhaps offshore.
They’re certainly not being spent, not even on big purchases. We use cards for large and small purchases alike. Large purchases require a PIN, however, and that was a problem in our new hygienic era.
To reduce touching during the pandemic, many banks and payment providers raised the threshold for when you have to use a PIN. Customers now only need to use one when the amount is over $200. By the time the coronavirus fades probably none of us will remember our PINs.
The way we pay on card may not be quite what you’d expect. Despite millions of tap-and-go transactions each day, Visa and MasterCard have not dramatically increased their market share.
In fact between 2016 and 2019 they lost ground. Australians prefer to pay with their own money, debiting their account for each transaction.
Young people in particular are not signing up for a card. Much earnest guff has been written about how young people’s experience in living through the global financial crisis turned them off credit. It seemed like a good theory — until the controversial rise of Afterpay.
Afterpay is a so-called buy-now-pay-later service. Instead of functioning as a loan, it splits a purchase into four instalments. There is no interest, but there are late fees.
It’s insanely popular with young people, and it and its many competitors put to the sword any idea that debt is now a nasty word. A more realistic explanation is the idea that Visa and MasterCard grew large and old and slothful, failing to innovate and failing to market to the youth. So Afterpay ate their lunch.
To the delight of its investors, Afterpay has gorged itself on that lunch. As the next chart shows, $10,000 invested in Afterpay’s shares in 2017 would be worth $150,000 today.
There was a gap in the market for a new way to pay later. It created a service to fill that gap. Is that so bad? Turns out the answer is complex.
Afterpay is extremely popular with customers because they don’t bear the cost. The real way it makes money is not by late fees, but by clipping the ticket on each transaction. And those fees are high.
Buy-now-pay-later services charge merchants 3% to 6% of the purchase price — that’s two to 10 times as much as a credit-card provider charges. They also ban merchants from passing on those fees to customers who choose to use them. That means the rest of us are cross-subsiding these schemes.
The consumer advocacy group Choice put it like this in a recent submission to the RBA: “[Buy-now-pay-later] providers are not playing by the same rules as other payment providers, hurting merchants and consumers alike.”
Regulation is part of the answer. Retailers should be allowed to charge customers who use high-cost payment methods if they want to. Competition is also part of the answer.
Already cheaper alternatives are crowding into the market, including a “white-label” buy-now-pay-later scheme called Limepay that allows retailers to run their own system equivalent to Afterpay.
Cash is never coming back — we know that. But what precisely will replace it remains a fiercely fought battle.
Have you fallen out of love with cash? Let us know your thoughts on the future of cash by writing to [email protected]. Please include your full name to be considered for publication in Crikey’s Your Say section.
Coronavirus has sped up the decline of cash. But a cashless future isn’t on the cards
Australians are using less cash than ever. We’ve stopped taking money out of ATMs. We’ve stopped using it to buy coffee.
And while other societies stubbornly cling to old-fashioned payment methods, we’ve taken up contactless tap-and-pay with great enthusiasm. And now, as COVID-19 has induced a fear of physical contact, that’s set to accelerate.
A long decline
When did so many Australians fall out of love with cash? The most recent survey of consumer payment behaviour from the Reserve Bank of Australia suggests it’s been a long time coming.
In 2007 cash accounted for 69% of transactions, cards 26%. The most recent survey, in 2019, found cash had fallen to 27% (down 10% from the 2016 survey), and cards were at 63%.
Despite the recent growth in things like Apple Pay, internet and phone banking account for just 3% of all payments.
It’s a trend across the Western world. Even in the United States where things like tap-and-pay are a rarity compared with Australia, three in 10 adults don’t use cash each week.
The virus makes it worse
But these changes in spending patterns will probably be locked in even further by the pandemic, with more shops urging customers to use cards or contactless payments, said Swinburne University of Technology Professor Steve Worthington.
“I think people will get used to not using cash and after the pandemic those habits will roll on,” he says. “Contactless, digital and other payments will increase.”
In early March the World Health Organisation was misreported as having recommended contactless payments over cash. It had, in fact, advised people to wash their hands after using banknotes.
Still, the decline of cash has been swift. Anecdotally, at least, many cafes and restaurants are accepting only cards. ATM withdrawals have declined by about a third since the start of the crisis and there’s been a 60% drop in ATM withdrawals in the UK.
But there are other ways the pandemic might have rewired our spending habits. In the early days when we were panic-buying toilet paper and pasta, others were doing the same with cash.
“When the whole pandemic kicked in there were a lot of large transactions where people took a lot of money out of the bank at a time,” Worthington says.
“During a crisis like this, people feel a bit insecure, so you’d rather have cash to hand.”
The Reserve Bank said some people were withdrawing millions, the kind of behaviour last seen during the height of the global financial crisis.
Less cash, but not quite cashless
Worthington isn’t convinced of a cash-free future.
“Cash will continue to decline, but it won’t be eradicated,” he says. “We might be a less cash society, but we won’t be a cashless society.”
That’s because for many of society’s most vulnerable people, a cash-free society can be incredibly exclusionary.
“People with disabilities, the elderly, people in rural communities with less access to technology, newly arrived migrants without a bank account, they’re all excluded,” Worthington says.
Sweden, the poster child for a cash-free world, is a case in point. There are fears it moved away from cash so fast that many who relied on it were left behind, and it’s now so tough to even find an ATM in Stockholm that the country recently passed a law forcing banks to offer cash.
And in the US, there’s a growing pushback against cashlessness at a local level: in January New York joined New Jersey, San Francisco and Philadelphia in passing a law stopping businesses from refusing cash.
Worthington said once the pandemic was over Australia should consider doing a similar thing. We still have our share of unbanked or underbanked people. And during a tough economic recovery it’s they who will suffer most without freedom to pay with cash.
Have you fallen out of love with cash? Let us know your thoughts on the future of cash by writing to [email protected]. Please include your full name to be considered for publication in Crikey’s Your Say section.