The costly business of cash has to change

Cash costs money.

As part of the debate about surcharges imposed by retailers on people who pay with a card or another electronic device versus physical money, I’ve lost track of the number of times I’ve had to explain that cash is not free.

Cash costs money to use. If the country wants to keep it, then costs have to be reduced.Credit: James Davies

You might hand over a $5 note for a pie or a coffee, while the customer next to you pays $5.05 because of a 1 per cent surcharge as they use tap-and-go, but that $5 already includes the large cost for retailers of handling cash.

From the cost of a cash float in the register to collecting it every day and sending a staff member to the bank, there’s a cost embedded in cash that we don’t see.

One of the biggest cash costs that goes unseen is security. Understandably, there are strict rules when it comes to moving cash that includes secure vehicles, armed staff, and their training.

Moving cash long distances is also costly. Getting cash to a regional centre or a remote location costs money. Electronic ones and zeroes are next to costless.

Card surcharges are obvious. They whack us in the face (and the wallet) every time we tap. But the cost of cash is invisible, meaning too many people, sadly, believe cash is free.

As Commonwealth Bank chief executive Matt Comyn noted recently, cash costs a retailer about 3.9 per cent of a product or service, more than double that of an electronic payment.

It’s the cost of cash, and its declining use, that has the last remaining large cash moving company, Armaguard, in so much trouble at present. It’s why the commercial banks, big retailers and the Reserve Bank of Australia are trying to reduce the cost of cash and keep Armaguard viable.

Despite the conspiracy nuts out there who reckon the RBA and commercial banks want to kill cash, both realise there is still demand for it in some parts of the economy. So they are trying to find ways to ensure it remains a going concern.

Armaguard is attempting to streamline the way it collects cash. For instance, instead of each bank having odd collection days and collection methods, a more standardised and cost-effective system is being rolled out.

At least one commercial bank is using ATM technology that effectively recycles cash within the machines – something older style ATMs cannot do.

Another proposal would enable banks to share cash among themselves without needing expensive cash moving companies such as Armaguard to become involved.

Think of a large country centre such as Ballarat or Albury-Wodonga where each of the major banks have a presence. At present, if one bank needs a cash top-up it has to bring in Armaguard to move money a couple of hundred metres from one branch to another. But allowing bank staff to shift smaller amounts to a competitor’s branch would shave down the cost of cash.

There’s also another area where costs can be saved.

The nation’s banks hold tens of millions in cash in their branches and ATMs overnight for a host of reasons. Under a system that’s been in place for decades, if that cash is moved to a privately operated cash and coin depot, the RBA pays interest to the bank.

From a bank’s perspective, it makes commercial sense to move cash that would otherwise be sitting around collecting dust to a depot where it’s attracting interest, and the idea behind this system was to encourage the banks to move cash among themselves. But the growing cost of moving smaller volumes of cash has now undermined that original rationale.

An alternative solution, which the banks are keen on, is for the RBA to simply pay the interest on these holdings without them having to be physically moved every few days to a central depot.

All of these ideas, if implemented together, would go some way to reducing unnecessary costs for banks.

These potential savings also connect to one of the biggest bugbears faced by consumers – those damn card surcharges.

Surcharges mean people know the costs a business faces in providing its services. It’s information a shopper can use to decide whether or not to shop at a particular location, and if they’d like to pay via tap-and-go or pull a dog-eared $5 note from the back of a wallet.

But if it’s good enough to tell consumers the cost of the payment system digitally, why don’t retailers tell shoppers the cost of cash services? Allowing a retailer to label something a “surcharge” suggests it’s a cost out of their control. But the same retailers can’t or won’t tell you the cost of counting the notes and coins, organising the daily float, the lost staff time of an employee heading to the bank or even the security arrangements protecting the day’s takings.

How about an electricity surcharge or a pastry fee or maybe a “sorry we broke a window” tariff?

Cash usage has collapsed over the past decade to the point where just 13 per cent of all transactions are now done with notes and coins. If we want to make sure cash has a future, we have to recognise that it is not free, and find ways to reduce its cost.

Shane Wright is a senior economics correspondent.

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