The role of Fintech in Australia's transition to a Cashless Society

Many financial experts agree that Australia will eventually become a cashless society. It is just a matter of when.

Back in 2018, Nick Dryden, the Founder and CEO of the biometric services company Sthaler, predicted it would be within ‘two or three generations’. However, this was before COVID-19 changed the landscape of digital payments forever.

Today, cash is no longer king, as the Reserve Bank of Australia (RBA) recently revealed that these types of payments accounted for only 13% of transactions in 2022, as compared to 69% fifteen years earlier.

In fact, the tide has turned so irreversibly that some experts, including Angel Zhong, who is an Associate Professor of Finance at RMIT University, have even gone on record as saying that the Lucky Country will be completely cashless by 2030.

So, what has sparked this change in the way Australians manage, spend, and save money?

Largely, it is down to the Fintech industry.

Here is an in-depth look at how it is enabling this transition and what it means for individuals and businesses who will have no choice but to embrace this new era.

What is driving this change?

The concept of a cashless society was first mooted in the 1970s when bank cards were introduced in Australia. This move was driven by safety and convenience, with this innovation meaning people didn’t need to carry large sums of money around with them. (Muggings and burglaries were common at this time).

During the COVID pandemic, further groundwork for a cashless society was put in place as retailers and consumers became reluctant to handle coins and notes that were potentially infected with the virus.

This led to the increasing adoption of contactless digital payment methods such as Smartpay EFTPOS machines, which were quicker, safer, and a lot more convenient. Along with it came louder calls for a completely cashless society.

The fact that more and more people are adopting digital payments as their preferred way to pay for goods and services has caught the attention of the federal government. Jim Chalmers, The Treasurer, recently unveiled plans to regulate the providers of these types of payments.

How is the fintech industry facilitating the transition?

The fact that more people than ever are able to pay for their purchases in ways other than cold hard cash is down to fintech companies.

Thanks to major technological advances, consumers now have several payment options available to them whenever they want to buy something.

They include the following:

1. Digital Wallets

According to the Australian Banking Association, about 40% of Aussies do not take a purse or wallet out with them when they leave home. Instead, they rely on digital wallets such as Google Pay or Apple Pay to make contactless payments.

This method uses certain wireless technologies on your device, including Wi-Fi, Bluetooth, and magnetic signals, along with NFC (near-field communication), to carry payment information through the terminal, in similar fashion to a physical credit or debit card.

2. Buy Now, Pay Later (BNPL)

In recent years, BNPL services, such as Zip or Afterpay, have revolutionised the way Australians, particularly, Gen Z, purchase products.

These services provide them with a much more flexible alternative to credit cards, which demand immediate payment. It does this by allowing users to split the cost of their purchase into four manageable instalments that do not come with the caveat of high interest rates.

3. Peer-to-Peer (P2P) Payment Platforms

The invention of Peer-to-Peer payment platforms like Wise and Beem has made it much easier to pay for purchases.

The former is accepted as a form of payment on many platforms and websites, including Shopify, Amazon, Stripe, Etsy, and Upwork. The latter enables you to pay, request, transfer, or split money and is sent in just a few minutes, regardless of who you bank with.

4. Cryptocurrency

In their Australian Crypto survey of 2023, Swyftx estimates that over 4.5 million people own some form of this digital currency, with Bitcoin being the most popular.

Increasingly, it is being used as a method of payment in Australia as a range of companies are accepting it, including Jim’s Jerky, Queensland Solar & Lighting, Peak Coffee, Forsyth Real Estate, and Dream Vision Sound.

5. Embedded Finance

Another major innovation fintechs have come up with is the integration of financial services into non-financial platforms.

For example, ride-sharing apps such as Uber now allow users to pay for services directly within the app, which, therefore, reduces the need for cash or external payment processing.

Benefits of a Cashless Society

So, what are the benefits of moving to a cashless society?

Well, experts suggest one of the most notable will be the increased security of financial payments as digital transactions reduce the risks associated with carrying physical cash.

They also believe a cashless society will save businesses lots of time and resources on account of them not having to handle as many cash transactions.

As digital payments leave an auditable trail, it will undoubtedly facilitate enhanced financial transparency, which should, in turn, eliminate tax evasion and reduce the levels of illicit activities.

People in underserved communities will also likely benefit from increased access to banking and credit services through mobile technology, which they otherwise might not have.

Challenges to Overcome

While the transition to a cashless society is seen as inevitable, there are still some challenges that will have to be overcome.

One of the main ones is that people, particularly older Australians, do not like change, so implementing the full move towards digital-only payments could be difficult, especially if it becomes a political issue.

Additionally, Australia still doesn’t have a reliable infrastructure of internet and mobile networks, which are essential for seamless digital payments.

The latest annual Digital Quality of Life Index from SURFSHARK puts Australia’s ranking for internet quality experience at 72nd in the world, behind the likes of Latvia, Vietnam, and Kazakhstan.

Finally, there is the white elephant in the room, which is the question of how people can pay for purchases in a cashless society when banks experience outages – of which the RBA claims there have been 532 instances of banks experiencing in the last 30 months.