The End of Cash?

A few days after Christmas I stumbled upon one of the few cafes in my inner-Sydney suburb that hadn’t gone on holidays, and ordered a flat white. “That’ll be four dollars,” the owner replied. Digging into my wallet, I pulled out a brand new $50 note. “Oh, no, sorry,” he said.

“You won’t take my money?”

“I can’t. I don’t have any cash. You see, no one else has been using it, so I don’t have any here.”

I was shocked to hear this – but not surprised. I’d seen it happening in my own life. In July, a friend had urged me to download the Up! Banking app, and within minutes the neobank issued me a digital debit card onto my iPhone. No big deal, you’d think – I already had a few Apple Pay-enabled credit cards. But for some reason I can’t quite explain, it was completely different. From the moment I had that Apple Pay debit card on my iPhone X, I stopped using cash completely – and didn’t even realise I’d done so for a fair few days. Tap, tap, tap.

Several years ago, without really noticing, I ceased to have any reason to write cheques. As an American – raised in a culture that still sends heaps of cheques – that felt weird. Last year, I ceased to have any reason to carry cash. Only my barber and my cleaner get paid in cash. Everyone else gets a tap – or almost everyone. Some of the stalls at food courts in Haymarket still demand cash payments – but even these seem to be vanishing. We’re at the cusp of a culture where cash has simply become unnecessary. Or so we believe.

The recently released Fjord Trends report from Accenture shines a light on where cash is headed at the start of a new decade: Only 13% of Swedes can recall using cash for a recent purchase; in the USA, 30% of people no longer use cash in a given week. The future is already here, but unevenly distributed – and it seems like a lot of that future has arrived very quickly in Australia. The nation’s massive installed base of retail EFTPOS terminals made the transition to digital payments little more than a hardware upgrade; the silver lining in the delay in rolling out Apple Pay across the Big4 banks (Westpac still isn’t quite there!) meant that retailers had time to upgrade before most of Australia could pay via smartphone. Now that these stars have aligned, the nation seems to be ditching cash at a rate of knots.

That’s not entirely a good thing. Twice during the Christmas shopping season – once before and once after Christmas Day – digital payments terminals went down at Myer stores throughout Australia.

For hours, customers couldn’t pay for their purchases in anything but cash, and few of them cared to wait.

Losing millions of dollars in sales for every hour of downtime, Myer paid a high price for its wobbly infrastructure.

More significantly, when the call went out at the beginning of January to evacuate the coastal areas of southeastern NSW and northeastern Victoria, tens of thousands of holidaymakers found themselves unable to buy food or petrol (and thus, unable to drive themselves out of the evacuation zone) because communication links had been severed by bushfire. When those links went down, ATMs, EFTPOS and all sorts of digital payments services went with them.

The effortlessness of a digital payment disguises a vast amount of very carefully tuned infrastructure, starting with the EFTPOS terminal, heading back to a credit card processor, then to a customer’s bank, all of which has to work perfectly (and within just a few seconds), or none of it really works at all. Australia has world-class infrastructure, but because so much of our payments depend on that infrastructure, when it fails, our cashless culture instantly becomes a moneyless culture.

This lack of resilience will slow the transition to an economy fully powered by digital payments. Once burned making a digital payment, we’ll think twice about taking another risk. That mattered less when this infrastructure primarily handled larger-value credit-card transactions. Now that every transaction of any size needs to flow across this infrastructure with near-perfect reliability, we need to ask whether these existing digital payments truly meet our needs.

Most of the time, our infrastructure does the job well, but edge cases such as emergencies mean we can not rely on them. We need a solution that provides the convenience of digital payments plus the resilience of cash. The new technologies of ‘digital currencies’ – such as Bitcoin and Facebook’s Libra – mean that cash can be paid directly from someone who possess it to any other party, but without the need for a reliable network infrastructure to verify or authenticate or approve the transfer. That means a digital currency can be used anywhere – online or offline, city or bush, between businesses or individuals. If the network goes down, no worries – digital cash, like its physical counterpart, continues to work.

Facebook has become such an object of distrust that getting the necessary regulatory approvals for Libra proved impossible.

But Libra prompted the People’s Bank of China to announce the release of a ‘digital yuan’ in 2020

with large-scale tests to begin in Shenzhen and Suzhou before the middle of this year. The PBoC has already made it clear that their intention is to fully migrate the world’s 2nd largest economy into digital currency – a data bonanza for the Chinese government, which will acquire the ability to track every transaction by every Chinese citizen or business.

A digital yuan means that every business doing business with China will need to consider how it will work with and manage digital currencies. Our banks can store physical banknotes or their equivalent in deposits — but what about digital currencies? The digital yuan looks to be forcing us to mutate our entire financial infrastructure to accommodate digital currencies. The Chinese invented paper money over 1100 years ago, transforming finance. It looks like this decade will see a case of history repeating.