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  • Writer's pictureMark Walbank

Cash demand during COVID-19 goes significantly up

Updated: Sep 17, 2021

Abstract from the RBA researchers:

"Since the onset of the COVID-19 pandemic, the value of banknotes in circulation has risen sharply. This was despite cash being used much less for everyday transactions. Much of the strong demand for banknotes can be attributed to people's desire to hold cash for precautionary or store-of-wealth purposes. This behaviour is common during periods of significant economic uncertainty and stress, and many other countries saw similar patterns of cash demand."

We don't always agree with the analysis of the RBA on many issues regarding the payments market. The predominant view at the central bank is that merchants will be endlessly patient with the ever-increasing cost of card payments. The bank itself in cahoots with other banks and APN has been responsible for driving customers to credit/debit card payments. While the RBA and the Australian Payments Network should be neutral when it comes to payment technologies, they are anything but. They have willingly allowed two different set of rules to exist for ATMs and POS devices. With the latter, the cost of the credit/debit card is actually hidden. How is this fair or neutral? You have to check your bank statement at the end of the month to see who much money you, the customer, has paid in POS fees.

Major banks are doing everything in their power to see cash become a tiny niche payment market. Not only they want to track every transaction of your, they also want to save huge amounts of money on being quite incompetent and wasteful managers of their ATM fleets. Once one or two credit networks reach a monopoly, or a duopoly, expect credit card fees to keep rising and credit networks to behave as a cartel. We are already in that situation here in Australia.

We have heard multiple stories with people going withdraw hundreds of thousands of dollars of their money during COVID-19 (especially here in QLD where we live), with banks refusing to pass their customers' money or taking weeks to find the requested sums of money. The simple truth is when there is a financial crisis or extraordinary stress (and COVID-19 certainly is an unprecedented crisis, where different levels of governments have closed down our businesses, or the businesses of our customers, and refuse to pay any relief money to owners of all sorts of small businesses, assuming we somehow are not the only workers in the business and have some non-existent cash stashed somewhere that we can use at the moment), ordinary people don't trust the banks.

While ATMs have to signal upfront their price to users for withdrawing cash from ATMs, this is not the case with POS devices. Once merchants start to display and pass on the surcharge fee to the customer, once they are actually allowed to do so, many customers would think twice about paying with card. We are dealing with merchants who are so unhappy with their high POS fees everyday. The RBA never hears these voices, hence we take the analysis of armchair researchers from Martin Square in Sydney with a grain of salt. The payment market is two-sided. With the POS system, the market is so skewed in favour of credit card paying customers.

However, unless we start all of a sudden living in some authoritarian regime where the government dictates how we are going to be paid, merchants (small, medium, and large) are already starting to push back against POS charges. Just see my post on Amazon Australia. Once the two sides of the payments market start to get closer to a balance, we wonder how correct RBA data regarding the fall of transactional cash withdrawals will be, especially if Australia enters a protracted period of recession, which is not out of the question with prolonged lockdowns and closed-down economies.

We continue to believe, based on endless conversations with our customers, that around 30% of the merchants will remain cash-only businesses. In the last few weeks, just before half of the country went into lockdown, we sold eight ATMs to entirely new group of merchants. These are merchants who have never had an ATM before, but are sick and tired of the POS charges. They are removing their POS devices and going cash-only.

The authors of the report which you can download below are listed in the report. You can also see their names in the attached image.

Cash Demand During Covid-19
Download PDF • 484KB

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