Has cash lost its crown?

There are now many ways to pay for goods and services without cash – EFTPOS, PayPass, payWave, BPAY, PayPal, Paymate, credit card, debit card, POLi, online transfer and mobile payments.

As a nation, we’re increasing our use of all of these, perhaps in part because it can be difficult or impossible to opt out of these services. New credit cards are now issued with contactless technology which you can’t say no to and some banks are refusing to issue EFTPOS-only cards instead providing Visa or MasterCard debit cards.

In contrast, we are using cash less - a lot less. In fact, cash now accounts for only 34% of what we buy which is 5% less than just three years ago, and the trend is continuing. So much so that the Reserve Bank of Australia (RBA) is consulting industry on payment innovations that can potentially replace cash.

At the same time we’re also seeing more and increasing surcharges for using many of the non-cash payment methods. Visa and MasterCard often attract a 1% surcharge, AmEx 2%, and Diners up to 4% and recent changes to the EFTPOS system are expected to see some surcharges introduced this year. Some industries routinely charge well above these levels: taxis charge an additional 10% for all card payments and airlines charge flat fees for credit card payments.

In general, consumers don’t like surcharges, and as we said in our recent submission [PDF] to the RBA’s review of credit card surcharging, consumers are increasingly concerned that surcharges have become a revenue stream rather than a way to recover costs.

Nonetheless, we seem to be willing to pay these charges, even if it means going into debt. In the 10 years to June 2011, the number of credit cards on issue increased by 56% to 14.9 million, and the outstanding balance on credit cards rose over 200% to $49.7 billion, with $36.7 billion of this attracting interest.

While the government’s credit card reform legislation brings some welcome changes to help prevent consumers getting into unmanageable debt and also to pay back expensive debt quicker, credit cards remain an expensive form of finance.

In contrast, cash is often a much cheaper way to pay and some shops will actually give you a discount for paying by cash. There are no surcharges and if you withdraw money from your own bank’s ATM network, there can be no ATM fees.

So, why have we stopped using cash? Is cash no longer king? Tell us what you think about new payment options and whether you think the cashless society is finally about to arrive.