The trend towards low value cashless transactions

There is a noticeable increasing trend towards cashless transactions in Australia. This is not just in the form of internet and over-the-phone purchases, but also through an increased use of contactless payment technologies.

In 2005, 73% of all transactions conducted in Australia were completed using cash.  Fast forward to 2013, and that number was just 59%.  According to the Australian Payments Clearing Associations (APCA) July 2014 study, the trend indicates that only 43% of transactions will be conducted using physical cash by the year 2018.  While not completely cashless, it is shifting rapidly in that direction.

What’s driving this trend?

The advancement in payment technologies has been the primary driver of this trend. There are a wider choice of payment methods, which are convenient and easy to use and have driven down the cost and time of transactions. Coupled with this, is the Australian consumers readiness to accept new methods of payment.

What are the potential benefits?

An important question that retailers face is whether or not they should adopt technologies that support the shift to cashless purchases, or stick with cash.  Both have potential benefits.  Here are five key benefits that should be considered when developing a strategy around accepting payments.

1. Sales

The customer experience has a big impact on generating sales and achieving growth.  There are many customer touch points that can impact this, including advertising, the design and layout of the outlet and the efficiency, availability and friendliness of the staff.

The point of payment is a key touch point that can sometimes be overlooked.  As customers move to more digital payment technologies, there can be frustration if the retailer doesn’t keep pace.  Consider the experience of customers who want to pay by card, but cannot because the retailer does not have the capacity to do so.  That customer is faced with a choice, with the likely outcome being that they go to a different competing retailer to complete the transaction that does offer this facility.

2. Cost savings

In December 2014, the Reserve Bank of Australia (RBA) released a paper titled ‘The Evolution of Payment Costs in Australia’.  This paper suggests that the cost of handling physical cash is increasing, while at the same time, improvements in digital technology were driving the costs down for retailers.

As the RBA paper says “While cash has traditionally been the least costly method available for small payment values, developments since the previous study indicate that electronic payments are increasingly able to offer a low-cost alternative to cash.”

3. Productivity

The same RBA paper indicates that contactless payments take approximately five seconds less to process than a traditional cash payment.  While five seconds may seem insignificant, the question for retailers lies in both how many transactions they currently undertake a day, as well as what growth aspirations they have.

Consider a retailer that conducts 1,000 transactions in an eight hour period.  That would be a saving of 1.4 hours per day in productivity time, or an extra 63 days over a full year.  The question then becomes:  how to take advantage of that time saving to either support or grow the business?

4.  Security

To prevent potential theft, retailers will generally have significantly invested in security for cash based transactions.  These can include cameras, alarms, dye bombs, security screens, safes and a security transit service to move cash from the retail outlet to the bank.

Cashless payment technologies can potentially remove the need for some of these security measures, as the transaction happens digitally and there are records of each transaction.

5. Administration

In addition to removing many of the security issues, cash less payment methods could improve the administration of the business. All cashless transactions are recorded and can be reconciled to the businesses settlement accounts.

Next steps

Australian’s are embracing contactless payments. According to a study done by RFI International in May 2014 of 11 major countries, Australia is leading the world on taking up contactless payments and on average are making over 7 transactions per month and 54% of Australians have cards that can access the technology. As a retailer it is now time to get on board with these new technologies and integrate them into your business, before you find your customers no longer want to transact with you. If you have not done so already, talk to your banker about what technologies are available and what would suit your business.

Written By: Rob Lockhart, Westpac


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