What business leaders need to know about a cashless economy

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Australia’s shift to a cashless economy is accelerating, reshaping business efficiency and digital payment infrastructure

The digital revolution has transformed many aspects of our lives, and the way we pay for goods and services is no exception. However, cash transactions in Australia continue to decline rapidly. According to the Reserve Bank of Australia, cash payments fell from around 70% of consumer payments in 2007 to just 13% in 2022.

Today, this figure sits at “a little bit less than 10% of transactions, weighted by dollar value”, according to Scientia Professor Richard Holden in the School of Economics at UNSW Business School. Australia is rapidly moving toward a “functionally cashless” economy, said Prof. Holden, who was recently interviewed by Dr Juliet Bourke, Adjunct Professor in the School of Management and Governance at UNSW Business School for The Business Of, a podcast from UNSW Business School.

This decline in cash usage was further accelerated by the pandemic, when many businesses temporarily refused cash payments due to health concerns. According to Prof. Holden, this period revealed the practical and financial burdens of handling cash: “At a time when businesses were really struggling, all the extra costs associated with cash really came to the fore. So, you’ve got to have a float, you’ve got to have extra insurance,” he explained. “When businesses are really under a lot of pressure, they try and look to take those inefficiencies out of the system.”

The business benefits of going cashless

For business owners, the transition to cashless payments offers significant advantages. Prof. Holden explains: “It’s more efficient. You can serve more customers, get customers through the line faster. You don’t have to have a float and the cash handling. You don’t have to pay somebody in your cafe or your restaurant to spend half an hour or an hour, bundling up the coins and cash into the right denominations and taking them to the bank. You don’t have to have the insurance associated with having cash onsite.”

The infrastructure supporting cashless transactions in Australia is well-developed compared to many other countries. Australia’s banking system is robust, with virtually all citizens having access to bank accounts, unlike countries such as the United States where a significant portion of the population remains unbanked. Additionally, the implementation of the New Payment Platform (NPP), which enables real-time, 24/7 transfers between accounts using PayID, has further facilitated the move toward digital payments.

The cost structure of cash management is becoming increasingly problematic as cash usage declines. Cash handling services face financial challenges due to decreasing volumes through their delivery networks, said Prof. Holden. Despite cash making up less than 10% of transactions by value in Australia, the fixed cost of trucks transporting cash to and from large retailers and supermarkets such as Woolworths and Coles remains the same.

Challenges in the transition to cashless

Despite the benefits, the transition to a cashless economy presents challenges. Certain segments of the population, particularly older Australians, may find digital payment methods intimidating. Additionally, some consumers resist cashless payments due to privacy concerns or fears about government control.

The reliability of digital payment systems during outages or natural disasters has also been questioned. However, Prof. Holden challenges the notion that cash is more resilient during such events: “If there’s a power outage, then stores aren’t open,” he said. “No one’s opening a convenience store or a supermarket when the lights aren’t on.”

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He cites the 2024 CrowdStrike outage as an example, when digital payments were often more reliable than cash. A faulty update led to a global IT outage, affecting various sectors including banking and retail. Despite the widespread disruption, major card networks like Visa and Mastercard reported no impact on their operations.

Business owners must also navigate consumer sensitivity to additional fees for digital payments. The Australian government has introduced legislation restricting surcharges on debit card transactions, though this remains a point of contention between banks, credit card companies, and businesses.

Looking forward: The future of payments

Prof. Holden predicts that cash usage in Australia will continue to decline, dropping to less than 5% of transactions by value within five years. This shift will create challenges for the remaining cash infrastructure, including ATMs and cash transport services, which may become economically unsustainable without government subsidies.

For essential services that currently accept cash payments, he suggests alternative approaches. For instance, he envisions digital kiosks at Australia Post outlets where customers can pay bills electronically with assistance from staff if needed. For older Australians, he suggested they might go straight to Australia Post. “Go to the digital kiosk [and] all they do is they tap their tap card, scan their bill, and it’s automatically done. No $3 fee, and there’s someone standing there to help them through the process if they need a little bit of assistance with it,” Prof. Holden explained.

The global landscape of payment systems varies considerably, with some economies embracing cashless payments while others remain predominantly cash-based. Cross-border business generally operates digitally regardless of local consumer preferences, with central banks increasingly exploring wholesale central bank digital currencies (CBDCs) for international transactions.

Cryptocurrency and the cashless economy

While the move toward digital payments continues to gain momentum, cryptocurrencies present a parallel but distinct development in the financial landscape. Prof. Holden explains that cryptocurrencies like Bitcoin emerged from distrust in centralised financial systems following the 2008 financial crisis: “The animating premise of Bitcoin, and the reason that the white paper came out in 2008 was this view that people had, and the founder of it, and Nakamoto had, which was, you can't trust centralised authority. You can't trust governments, and you can't trust big financial institutions like banks,” he said.

Despite growing interest in cryptocurrencies, Prof. Holden identifies fundamental obstacles to their widespread adoption for everyday transactions. The most significant challenge is the cost of decentralised trust: "The Bitcoin network in a given year uses comfortably more electricity than the entire country of Sweden uses in a year, comfortably more,” he said. “And that has really bad scaling properties. The more people that use it, the more the cost.”

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Alternative cryptocurrency models like Ethereum have attempted to address these energy concerns by shifting from a "proof of work" to a "proof of stake" consensus protocol. However, Prof. Holden said the underlying economic challenge remains: "The cost of trust between 'proof of work' and 'proof of stake' is exactly the same, so the cost of decentralised trust is really, really high.”

A potential bridge between cryptocurrency innovation and practical payment systems may come from central banks. Professor Holden suggests that central bank digital currencies could try to get the benefits of cryptocurrency but do it on a centralised ledger, avoiding the big costs of decentralised trust. Such an approach might combine the programmability of cryptocurrencies like Ethereum with the efficiency and stability of traditional banking systems.

Practical implications for business leaders

For business leaders, the shift toward a cashless economy offers an opportunity to enhance efficiency and reduce costs. By embracing digital payment technologies, businesses can streamline operations, improve customer experience, and potentially increase sales volume.

Prof. Holden advises business leaders to “embrace it” rather than resist the trend. He suggests that businesses should consider the preferences of younger generations, who have grown up with digital technology and are unlikely to revert to older payment methods: “Whatever you want to say about, you know, Gen Z and Gen Alpha and so on. They have great facility with technology,” he said. “The idea that they’re going to take a step back from technology, I think, is misguided.”

He also encourages businesses to explore innovative financial technology solutions that can improve customer experience while addressing evolving needs. For example, digital tools that allow customers to segregate funds within a single account could provide the benefits of traditional cash management methods without the physical limitations: “You can already and this exists in the United States, and it ought to be coming soon to a banking app near you in Australia (hint, hint to the Big Four) is the ability to have segregated accounts within your one transaction account.”

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As Australia continues its transition to a functionally cashless economy, business leaders who adapt early and thoughtfully will be better positioned to benefit from increased efficiency, reduced costs, and improved customer experiences. The key is to ensure the transition is managed in a way that addresses the needs of all customers, including those who may find digital payments challenging, while embracing the opportunities that digital payment technologies offer.