The star performer in the payments mix

  • By Alan Shields

While cash usage is predicted to decline, latest research from RFi Group highlights the latest dynamics in the cash, credit and debit payment mix. 

At RFi Group we spend a lot of time looking at the payments industry and the developments that are occurring with regard to the digitisation of payments around the world. 

In understanding what is happening, we approach the market through two lenses; what does the consumer data tell us about how customers are feeling, thinking and behaving? And, what does the industry data tell us about how those behaviours are manifesting?

One of the payments trends that I have had my eye on over the last two months has been the usage and mix of credit, debit and cash and how consumers are changing their approach to these instruments as consumers. 

April and May is the time of the year when we run our annual payments diary study. Over the last 10 years we have been asking 1,000 consumers to fill out a short survey about payment preferences and behaviour and then record all their purchase and cash out transactions for a week. 

It’s always fascinating to see how attitudes and behaviours are changing, but that is particularly interesting right now.

Cash usage has been something that has been declining for a long time now, however, despite the rise of digital and contactless payment mechanisms, the decline has been slow. 

The only area of cash access that saw growth was credit card cash advances, which will be a data point that lenders will be wanting to keep a close eye on as the RBA releases its April and May data.

Indeed, over the 2014-2019 payment studies that we conducted, the proportion of consumers that said they still use cash in a typical month, only fell from 84 per cent to 80 per cent. 

It takes a lot to change consumer behaviour quickly. 

We are creatures of habit and we don’t necessarily recognise the inefficiencies in our traditional behaviours until we are forced to do something different. 

Enter Covid-19. Merchants have been shut and many of those that have been open have stopped accepting cash. In addition, consumers have a heightened ‘germ-awareness’ and have been reluctant to handle cash.

As a result, in our 2020 study, the proportion of consumers saying that they are using cash in a typical month has dropped by 10 per cent to 70 per cent. More than twice the drop seen over the preceding 5 years. 

This fall is backed up by Reserve Bank data, which shows that the value of cash taken out through ATM’s, Eftpos Cash-out transactions both declined in March 2020. 

This is all the more interesting because, despite the long-term trend away from cash, March is traditionally a month in which the volume and value of cash-out transactions increases. 

In fact, the only area of cash access that saw growth was credit card cash advances, which will be a data point that lenders will be wanting to keep a close eye on as the RBA releases its April and May data.

Source: RFi Group analysis of Reserve Bank of Australia data

What of other payment trends? 

Credit cards have also suffered. Similar to cash out transactions, the value of credit card transactions also tends to rise in March as the Christmas hangover on discretionary spending starts to lift and consumers treat themselves. 

However, the March data from the RBA shows that the traditional bump, which averages a 6 per cent increase in spending between February and March over the last 4 years, was absent in 2020. 

March spending was up just 0.6 per cent on February. Lacklustre. 

And debit cards? Debit has been the star performer over the last 15 years and 2020 looks to be no different. 

The consumers that are avoiding cash appear to be embracing debit, with the RBA data showing that every year spending peaks in December and then we see a post-Christmas decline in January and February before a recovery in March. 

In 2020 debit marches on, directly displacing cash and winning head-to-head with credit cards for everyday spending.

Source: RFi Group analysis of Reserve Bank of Australia data

So what of the future? Will the move away from cash be temporary or longer term? 

Ultimately, the answer to that will lie in whether the payment behaviour becomes habitual. It was Dr. Maxwell Maltz, the 1960’s self-help guru, who said that it takes 21 days to form a habit. 

If he is correct, then by the time the country returns to ‘normal’, there will have been ample time for consumers to have weaned themselves off cash and it will become a high-profile victim of Covid-19. 

Alan Shields is the chief operating officer at RFi Group