Dinosaur Extinction

Is cash going the way of the dinosaur?

Fri, 22 Oct 2021

The role of cheques has diminished rapidly, as EFT and other online payment methods take over. There are signs that the humble banknote is on a similar trajectory.
 

The age of the dinosaur, based on the best available evidence, came to a sudden end 66 million years ago when a massive comet or asteroid crashed into the earth.

We’re not calling COVID-19 an extinction event for cash, but it does seem to have pushed it closer to the edge of the cliff.

Cash has been on the nose since the pandemic started. Opportunities to get our wallets out of our pockets have been seriously curtailed by lockdowns. When we did venture out, hygiene concerns saw many of us switch to contactless, tap-and-go payments, even for small purchases like cups of coffee.

Where cash lives on…under the mattress!

The Reserve Bank of Australia (RBA) keeps a close eye on these things. In March they published a bulletin called Cash Demand during COVID-19. A couple of key takeaways:

  • From 2007 to 2019, the cash share of total retail payments in Australia fell from 69% to 27%.
  • COVID-19 has accelerated this trend, and the shift away from day-to-day cash use may become permanent for many consumers.

Paradoxically, the sharp reduction in day-to-day cash transactions during the pandemic has coincided with a sharp rise in the value of banknotes in circulation, almost exclusively for larger denominations. I use the term ‘in circulation’ advisedly, as most of the circulation seems to be restricted to shuffling boxes around under mattresses.

The use of physical currency as a means of payment has continued to decline, while demand for cash as a store of wealth has grown.

The RBA says this behaviour is common during periods of significant economic uncertainty and stress.

Can you still bank on (or even in) the banks?

This tendency to stash the cash suggests that uncertainty about the robustness of the economy might well be matched by a lack of faith in the banking system itself.

The move towards a cashless economy, or at least a ‘less cash’ economy, has had flow-on effects for banks, with many branches closing.

I recently received a cheque in the mail, a very rare event these days. I took a walk into the almost deserted Sydney CBD, assuming I could drop into my bank to deposit the cheque, only to find that every branch was closed. Some had closed permanently, the others were operating with substantially reduced hours.

This would have been unthinkable not so long ago. (In the UK, the terms ‘bank holiday’ and ‘public holiday’ are synonymous, as it was always assumed the retail economy couldn’t function if the banks were closed.)

Less demand for cash also means fewer ATMs

A recent article from the Australian Financial Review talks about how COVID has led to “customers avoiding cash like the plague”, accelerating an existing trend. As Anna Bligh (CEO of the Australian Banking Association) puts it:

We have steered away from using cash and as a result, are seeing an increase in card and technology payments. The existing trend of doing banking online, instead of in a branch, has only continued.

I started my IT career in 1980 and soon found myself programming some of Australia’s earliest ATMs. Many customers took a while to warm to them, preferring to line up inside and take their cash from a human teller. It didn’t take long before those same customers would queue up at the ATM, while the tellers stood idle.

40 years on, there has been a dramatic reduction in the number of ATMs. In Australia, domestic issues contributed to this. Banks stopped charging fees for using ATMs, turning them into cost centres rather than profit centres. Simultaneously, customers were turning their back on cash, allowing banks to quietly retire ATMs with little or no backlash.

As surely as night follows day, the emergence of one technology means the demise of another.

Don’t expose your business to an extinction event!

Meteor Strike

Businesses that still rely on the cash and cheque economy could be viewed as modern-day dinosaurs, sleepwalking towards a date with destiny.

If that sounds like your business, COVID-19 should be a wake-up call. If you are a Sage 300 Business Partner, and it sounds like one or more of your customers, see it as an opportunity!

An easy way to start up a conversation about modernising their business, and stepping back from the cliff, would be introducing them to EFT Processing, from Orchid Systems.

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