The accelerated rate of digital adoption has contributed to a steady decline in the use of cash and even plastic for Australian consumers. It’s becoming more and more evident that Australia could be heading towards a cashless society. While money may never be completely phased out, there has been a noticeable shift to cashless payment methods attributed to the pandemic. The use of cash hasn’t bounced back from pre-pandemic levels, even in cash-heavy markets. Some forecasts predict Australia may be cashless by as soon as 2026.
Four significant trends are driving change in the Australian payments industry:
- Digital adoption
As technology continues to evolve in every industry, it is no surprise the payments industry is transforming also. A surge in digital wallets, such as Apple Pay and Google Pay, is a prime example of how payments are adapting to keep up with digital advancements. Research conducted by the Australian Banking Association (ABA) showed a 37 per cent increase in the use of the digital wallet from March 2020 to September 2021.
Consumers like the convenience of a digital wallet as it lets them pay with their phone instead of carrying a wallet full of cards and cash. This payment type can also facilitate frictionless experiences at the point of sale. For example, digital payment options may soon let customers enter a store, scan each item on their phone, and then pay automatically without visiting a check-out. This increases customer convenience while allowing stores to reduce costs and, potentially, increase turnover.
- Data growth
Along with the rise of digital adoption, data continues to be a significant factor in how the payments industry adapts. Banks and financial institutions have been using data to develop more specific products and services for customers, creating better customer relationships.
For example, banks can review customer data to determine whether a customer might benefit from a personal loan or other banking product. The bank can then proactively offer that product to the customer, lowering the barriers and improving cross-selling and upselling results. Conversely, based on spending habits or other trends, a lender may also discern that a customer may be struggling to repay existing loans. As a result, the lender could offer alternative repayment options to reduce the risk of the customer defaulting on the loan. These capabilities can also benefit consumers by making their relationship with their financial institution more personalised.
- Payments across borders
Regardless of the pandemic border closures, there are growing levels of cross-border payments across the nation and the world. EY reports that these new and emerging providers are driving significant innovation in the need for better information-sharing, fraud detection and prevention, and transparency.
This is crucial in light of recent overseas prosecutions of financial institutions for failing to identify and mitigate money laundering. As a result, financial institutions and even individual workers could potentially be found liable and even face criminal charges for not acting appropriately to stop money laundering. In addition, digital payments can make it easier to automate the fraud and money laundering detection process, taking decision-making out of the hands of individuals and reducing risk for financial institutions.
For businesses and consumers doing legitimate cross-border business, digital payment solutions can reduce the time between a payment being made and the funds hitting the recipient’s account.
- New currencies and payment methods
Cryptocurrency and similar digital payment methods are other significant factors in the changing payments landscape. These payment methods alter how consumers and financial institutions engage in payment processes. Financial institutions are now looking to accept and sell digital currencies, even issuing their version of cryptocurrency.
There are also discussions around nationally backed cryptocurrencies that would hold the same weight and legitimacy as a nation’s fiat currency. A cryptocurrency option supported by the nation’s government would be just as trustworthy as cash but with all a cryptocurrency’s speed and security benefits.
As technology advances further, so too will the payments industry. Payments and transactions will inevitably become more digitised as we head towards a cashless society. With any technological changes, banks and financial institutions must invest in ways to combat the potential complications associated with it to protect their data and customers.
Liberty IT Consulting Group is an Australian-owned organisation that provides consulting and project management expertise to banking and finance organisations to help replace, modernise, and upgrade their core technology systems. Liberty IT engages as a partner to organisations, helping to deliver on an outcome-based engagement model, taking pride in quality and experience.
For more information on how Liberty IT can help support your organisation with its business payments implementations or technology challenges, download the whitepaper ‘How banking and finance businesses can better prepare for the future payments industry’ or contact the team today.