The “Payments System” refers to arrangements which allow consumers, businesses and other organisations to transfer funds usually held in an account at a financial institution to one another. It includes the payment instruments – cash, cheques and electronic funds transfers which customers use to make payments – and the usually unseen arrangements that ensure that funds move from accounts at one financial institution to another.
Payments can be categorised into two categories –
- Cash Payments
- Non-Cash Payments
Cash Payments in Australia
The use of cash as a payment method remains widespread. One of the most comprehensive sources of data on individual cash payments is the Reserve Bank’s consumer payments use diary study. This study was first undertaken in 2007 and was repeated in 2010. These studies indicate that consumers used cash for most of their low-value transactions, with around 80 per cent of the number of payments under $25 made using cash in 2010. Overall, cash payments accounted for 62 per cent of the number and 23 per cent of the value of all payments made by individuals in the 2010 study, with some substitution away from cash use and towards electronic methods observed over the three years between the 2007 and 2010 studies. The most common way consumers withdraw cash is through ATMs, which accounted for around 70 per cent of the total number of cash withdrawals and 60 per cent of the value of withdrawals in 2012.
Non-Cash Payments in Australia
Non-cash payments account for most of the value of payments in the Australian economy. On average, in 2012 non-cash payments worth around $218 billion were made each business day, equivalent to about 15 per cent of GDP.
Almost three quarters of the value of non-cash transactions is accounted for by a small number of high-value payments made through Australia’s real-time gross settlement (RTGS) system. Most of the value of these payments relates to the settlement of foreign exchange and securities markets transactions.
The migration of large business payments to the RTGS system saw a decline in the importance of the cheque as a payment instrument. In 2012/13, around 9 personal and business cheques were written per person in Australia, down from 30 cheques per person 10 years earlier. A significant share of cheque use is related to commercial payments, and financial institution (‘bank’) cheques for certain transactions such as property settlements.
In contrast to the declining importance of cheques, the use of electronic payment instruments at the retail level has been growing rapidly. In 2012/13, transactions (both purchases and cash withdrawals) undertaken using either credit or debit cards averaged about 210 per person, an increase of around 50 per cent on the level of five years earlier.
For many years, Australian governments and businesses have made extensive use of Direct Entry credits for social security and salary payments. Consumers and businesses also establish direct debits for bill payments. Direct Entry payments are an important part of the payments landscape. These payments continue to account for the bulk of the value of non-cash retail payments (i.e. non-RTGS transactions).