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  • Writer's pictureMark Walbank

"Cash is dead, long live cash."

Updated: Oct 5, 2021

Lowe’s [current Reserve Bank Governor] made comments after a Telstra outage in 2018, which left businesses across the country unable to process card payments, prompting angry owners to take their complaints against the telco public.

Some business owners claimed they lost thousands of dollars in business due to the outage, prompting the telecommunications ombudsman to advise merchants they may be entitled to compensation.

Communication outages themselves demonstrate the need to keep cash as a default payment system when all other payment systems fail, which, unfortunately, might happen more often than we would like to believe in the future with climate change and cyber warfare.

However, there is something else that bothers me here. There is a particular logic that many senior bureaucrats, senior politicians, and some academics follow when we grapple with how to fight the 'black' economy, organised crime and terrorism. In the case of the black economy and organised crime, the solution in the mind of these pundits is a cashless society.

The zeal with which the 'cashless society' agenda is pursued by gigantic multinational card networks, the big Australian banks, the Australian Payments Network, a self-regulatory body of all Australian payment industries, including the ATM industry, is breathtaking. These regulatory bodies should be technology-neutral, but they are very partisan.

In 2018, National Australia Bank (NAB) compensated businesses after its outage, leaving merchants and their customers unable to use POS devices one weekend.

The cases have underscored the increasing seriousness of outages as consumers move away from cash payments, 'amid broader discussion about the state of play in the digital ecosystem and whether it adequately protects merchants' (quoted in Smart Company, 27 November 2018).

In 2018/2019, we had additional 4 outages affecting significant areas of Australia after the RBA's governor's comments. While merchants have the right to expect electronic card payments to work 24/7, they simply don't. No digital system for collecting, storing and disseminating data, including payments' data, is foolproof, or ever will be. The bigger the digital system is, the more sensitive the data is, the more attractive those systems become for hackers.

To make things even more complicated for those pundits who simply do not understand how IT systems work and should work in a democratic country, we warmly recommend the sobering article written by Melbourne University Associate Professor Vanessa Teague, chair of Cybersecurity and Democracy Network, School of Computing and Information Systems, Melbourne School of Engineering. Her article focuses on the threats to the privacy of law-abiding citizens living in a democratic country in the wake of the new Telecommunications and Other Legislation Amendment (Assistance and Access) Bill 2018 (TOLA Act), which was rushed through the federal parliament in late 2018.

Recently, in 2021, the 'Coalition bill to create powerful new warrants, allowing authorities to modify and delete data and even take over accounts, passes Senate', using the COVID-19 crisis as a cover. The bill passed the senate with little scrutiny. So, what I am writing below is a bit moot now.

'The Act aims to give law enforcement access to information, especially end-to-end encrypted services, for which the company providing the service wouldn’t have the cryptographic keys necessary to read the information.'

According to A. Professor Teague, 'security features that enable criminals to hide their illegal activities are also trusted by millions of ordinary people to protect their private information.'

Vanessa Teague argues that: 'Australian authorities haven’t provided a single example of a technical proposal that would work, let alone a convincing argument that there will be safeguards against exploitation by bad actors. And the TOLA Act provides no way for a targeted company to argue that undermining the security of one user won’t jeopardise others.'

In her excellent analysis, we again emphasise it's worth reading if you care for cybersecurity, privacy and democracy, Assoc. Professor Teague further convincingly argues that 'it’s the foreign intelligence agencies that threaten our national security. The Australian Government has credibly accused the Chinese Government of electronic spying. A new intrusion into federal parliament has been reported many times in the last few years. Any further weaknesses introduced under the TOLA Act could make us even more vulnerable.'

Even if the banks do upgrade their IT infrastructure up to standards that the RBA governor expects from them, which is a big IF, the digital payment ecosystem remains vulnerable to telecommunications outages outside the control of Telstra or other telecommunications companies. There remains the increased frequency of extreme weather events due to global climate change and malicious activity by sophisticated hackers (foreign state-sponsored or not). For official figures of the number of data breaches in the last year, see the website of the Australian Information Commissioner.

I am moving on here from the inherent dangers of digital systems.

We agree on some issues with the analysis offered in this article by Smart Company. However, we disagree that merchants should absorb the costs for getting paid, which could run from tens of thousands to hundreds of thousands of dollars a year. This argument just does not make any commercial sense for merchants, especially when you consider that merchants get paid to provide access to a payment method (ATMs) by ATMcompanies.

Why should merchants be penalised for how their customers pay them? With many small, medium and big brick-and-mortar retailers struggling to survive and contend with ever-decreasing profit margins due to competition by retailing giants like Amazon, Zara, E-bay and many others, how much merchants pay to get paid can make all the difference between closing down or keeping the doors to their businesses open.

With the devastating effects of so many COVID-19 lockdowns, many merchants would have to look at absolutely every item in their cost ledger to make sure that they survive. Unless operators of NFC and POS devices (banks and giant credit networks) allow merchants to pass the cost of POS fees to customers, many merchants will figure out that going back to cash payments is the intelligent thing to do to increase revenue in a challenging economic climate. In this scenario, customers (POS users) might switch to cash for paying for smaller purchases.

'Official ABS figures [for 2019] show retail turnover grew a meagre 3 per cent over the year to March, and profit margins remain under intense pressure in many parts of the sector from increased competition".

I don't even need to refer to ABS statistics about how badly the economy is doing in a COVID-19 crisis and with very little government support for businesses. We all know it and feel it. We have been completely forgotten on so many levels.

The only companies that benefit from this absorption of digital payments by merchants are behemoth international card networks like Visa or Mastercard and the banks.

Big retailers in the USA have taken a completely different approach to what Smart Company advocates for Australian merchants.

Bloomberg reported on 19 September 2018 that big US retailers, even after reaching a record $6.2 billion settlement with Visa and Mastercard, 'are gearing up for the next round in their fight with the world’s biggest payment networks. Tuesday’s settlement addresses only monetary damages associated with the lawsuit. There’s a separate class of merchants fighting for changes to Visa and Mastercard’s business practices.' US ATM companies are part of this new round of battles against Visa and Mastercard.

According to the US News, 'the lawsuit still has two other pieces to it that need to be resolved: a dispute over the rules Visa and Mastercard impose to accept their cards and the merchants who chose not to participate in the settlement, which is likely to number in the thousands.'

The original lawsuit against Visa and Mastercard dates from 2005, when the companies were owned by the banks and not the public. Then, merchants alleged that Visa and Mastercard used their dominant market position to impose artificially high fees, resulting in billions of dollars paid in excess swipe fees. However, Visa and Mastercard denied that and did not admit to wrongdoing as part of Tuesday's settlement.' (US News, 18 September 2018).

The Australian Payments Network, the Australian banks and the Reserve Bank of Australia have completely caved, when it comes to ATM usage, to Visa and Mastercard, allowing these two companies to impose rules on how debit and credit cards with their logos are used at Australian ATMs, dramatically increasing the cost of doing business for independent Australian ATM companies.

Due to the size of the Australian ATM market, Australian banks and settlement companies, who provide settlement and transaction processing for these ATM companies, are unwilling to hear the protests against these new Visa and MasterCard rules. Not having a voice at the Australian Payments Network (an Australian regulatory payment body founded and run by the banks for the banks), together with the unwillingness of the RBA to take the minor ATM industry players' concerns seriously at the time we tried to raise this, the smaller independent ATM companies extremely begrudgingly submitted to the new 'regime'.

The new regime is set out to benefit only the banks and the credit card networks. Australian consumers are still besotted with tapping and going, but soon they will wake up to the reality that this behaviour leaves them $200 million a year out of pocket.

While this hurts the Australian ATM independent sector, it also hurts Australian consumers while stifling genuine and fair competition between different payment systems and technologies. Ultimately, consumers are being stretched too because, in the end, they pay more in hidden fees or passed-on fees for their smaller purchases than what they would pay if they just went to an ATM and took some money for their smaller purchases.

In the USA, small, medium, and big retailers/merchants are willing to fight all the way to the Supreme Court for every cent they can save on digital and card payment fees. This is a US$90 billion market in the States.

Here, we have the Reserve Bank of Australia, the behemoth global card networks, the banks, digital and card payment bloggers seeing the whole digital and card payment system through extremely rosy glasses, openly working on engineering an outcome that profoundly hurts the pocket of every Australian merchant.

The Reserve Bank of Australia imposed price visibility on ATM fees at ATMs owned by merchants. We expect the central bank to be consistent and let merchants who accept POS payments to not only pass on the charge of POS payments to customers but also insist that customers should also be able to see, before making a purchase, what the merchant will be charging for a card or digital wallet payment. However, if customers can see this price upfront before purchasing something, some of these customers might think about whether they would like to pay with their card. Merchants in Australia are not allowed to make a profit from passing a POS charge to customers. Why not? This is a convenience service, and merchants should not be penalised for providing it.

They can certainly make a profit by driving their customers to pay with cash from their own ATMs.

As a consumer, I pay hundreds of dollars of payment fees every year for unauthorised tapping and waving of my Visa and Mastercard cards by retailing and hospitality staff. This behaviour is infuriates me. How dare they? These workers assume that when you pass your card that you want to use tap and go.

From now on, as a consumer, I only work with banks that give me a debit card with the EFTPOS logo. So if we choose to pay with a card, there is no way we have to pay for unauthorised tapping of my card when I pay a bill.

We believe that Australian consumers should have the right to turn off the tapping and waving function on their bank-issued cards via their online banking websites and apps, as New Zealand bank customers have. Now, even some Australian banks are offering this function since that is what their customers want.

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