Category: banking

Cashing in on the cashless society

While the world’s media was trying to get a handle on Russia and Ukraine, my counter-cyclical approach was to investigate the move towards a cashless society.

Retailers and banks have been (stealthily), moving away from having their shop assistants and tellers handle cash. Maybe it was already happening, but the Covid-19 pandemic accelerated the push by retailers in particular, to insist on people using a debit card to pay for goods and services. The rational was to slow the spread of germs, although one might be aghast at the results of swabbing an ATM keypad or EFTPOS machine.

A majority of Australians (55%) now has become used to internet banking, electronic bill paying and using debit or credit cards to buy goods and services.

In 2022, the Reserve Bank issued a technical bulletin about the use of and distribution of cash in Australia. The Bank’s Consumer Payments Survey (CPS) showed that the share of total retail payments made in cash fell from 69% in 2007 to 27% in 2019. The results from the 2022 study will be published later this year.

The RBA used multiple surveys to explain the rapidly declining use of cash in Australian society. The Online Banknotes Survey (OBS), commissioned by the RBA, asked individuals about their cash use behaviour. In 2022, cash was used by 25% of respondents in their most recent  transaction. Debit and credit cards remain the most popular payment method, although electronic options such as tapping with smartphones or watches are becoming more prevalent.

“The survey points to a permanent shift in payment behaviour for a significant proportion of the population; 39% of respondents said they have been using cash less often since the pandemic began. Those on lower incomes were more likely to have used cash for transactions and consider themselves high cash users.

On Sunday the host of Australia all Over, Ian McNamara, read out a letter from a listener who had taken a cache of cash to a bank branch. She was told the coins (in bags) could not be accepted as ‘we are a cashless bank’”.

“The world’s going to hell in a hand basket,” Macca opined, citing a phrase originating in mediaeval times.

The cashless bank issue was also canvassed by talkback radio 3AW, after a listener emailed to describe his run-in at a bank branch.

ANZ Victoria and Tasmania general manager Cameron Home confirmed in a statement to the radio station that “a small number” of branches “no longer handle cash at the counter”.

“At these branches cash and cheque deposits and cash withdrawals continue to be possible through a smart ATM and coin deposit machines.”

The ANZ spokesman did not quantity the number of branches refusing to take cash at the counter.

This trend poses a quandary for those of us who traditionally save coins. My pink piggy bank had reached the stage where there was no more room for the coins that accumulate like used tissues in the pockets of jeans and jackets. Many people have a piggy bank, an old cigar tin or biscuit barrel in which they throw their loose change. Nobody wants to keep $20 of loose change in their wallets, purses, handbags or pockets.

So, many of us have this habit, particularly if we are children of depression-era parents, of savings coins then banking them once the amount makes it worth the effort.

She Who Also Hoards Cash routinely throws $1 and $2 coins in a tin. Come Christmas she will count said cash, bank it, then use the $200 or so to buy ‘Christmas plonk’.

This week I laboriously counted and separated the cash into the correct denominations (in plastic bank bags).

All banks have scales and machines which can quickly and accurately confirm that a bag indeed contains $50 in $2 coins (or $7.80 in 20c pieces). Some branches can tip a mixed bag of cash into a machine which will automatically sort and count the cash in a matter of seconds.

I decided to spend an hour or so with a practical demonstration of how one fares trying to deposit $160 in coins at a bank branch. Our family bank (Suncorp) was closed – 9.30 – 2.00pm Monday to Friday). Did you know Suncorp had sold its banking business to ANZ Ltd? (No. Ed)

I then went to the Warwick Credit Union and the teller deposited the coins with no fuss at all. As part of the exercise, I learned that many banks now expect small business customers to deposit cash via a “Smart ATM”. I can only wonder how this will go with people who operate cash-only businesses (markets, busking, CD sales and so on).

The deep flaw in the concept of a cashless society is what happens when the technology (which relies on electricity and technology that works 24/7) fails. Almost on cue, we had an Australian banking example when some Commonwealth Bank customers were unable to log in to their accounts online.

The bank apologised to its customers after a major glitch left them unable to make purchases with their bank cards or access their accounts.

Customers received error messages when trying to use the NetBank online banking service and the CommBank mobile app.

It’s not the first example (for any bank or business for that matter) finding that their ‘smart’ apps can and do fail.

As dedicated readers may recall, we spent a week marooned in a regional town in New Zealand without mobile phones, internet or ATMs. Good thing the hire car had a full tank, eh! The town was cut off from the world in the aftermath of a catastrophic cyclone. A small supermarket near where we were staying had fired up its generator and served customers on the basis of ‘cash is king.’ EFTPOS payments were possible, but only after a long wait in a queue.Despite these occasional ‘hiccups,’ the banking industry seems  determined to introduce labour-saving technology, even if it sends their customers to hell in a hand basket.

A survey by RFI global asked merchants what their future intentions were towards accepting cash. The data suggest that half of merchants that accepted cash in April 2022 planned on actively discouraging cash payments or displaying signage to that effect at some point in the future. Those merchants that plan to move away from accepting cash were more likely to have higher turnover and be in metropolitan areas. The pandemic appears to have influenced some merchants’ plans to dissuade cash use, with hygiene concerns around cash handling as the most prominent reason. The risk of theft and the cost of sourcing cash are other reasons.

Meanwhile, the traditional source of cash for so many Australians (automatic teller machines or ATMS), is in decline. Since 2016, when ATM numbers peaked at 8,000, 25% have closed. Most of these closures have been ATMs owned by authorised deposit-taking institutions. Some of these ADIs, as they are known, will charge you a fee of up to $3.00 to make a withdrawal.

The latter is yet another argument I have against the banking system in general. Banks charge fees for almost every aspect of banking, be it in person or via internet banking. Virtually all merchants charge a fee when you use a credit card to make purchases (e.g, $5.90 added to a return ticket to NZ). Many banks charge a monthly fee for maintaining business and even personal accounts. Moreover, these fees increase over time.

It could be a mistake to ascribe the tap and go trend on Millennials or Generation Z.

I was at a choir reunion last month when an elegant 70-something woman, having ordered a pizza, leaned over towards the EFTPOS machine and waved her smart watch at it. Ka-ching!

More reading: what can go wrong will go wrong

 

 

The People’s Bank and Privatisation

privatisation-peoples-bank
Bank of Bob

My first reaction to the news that the Commonwealth Bank had made a $9.67 billion profit was a typical champagne socialist rant.

“What social justice reforms could we achieve with that kind of money?” I fumed (something non-smokers rarely do). For perspective, CommBank’s profit is more than double the $4 billion allocated to the Federal Media, Arts and Sporting industries in the March budget.

It’s also twice the amount the Federal Government allocated to affordable housing in the same Budget. What I’m implying by these comparisons will matter not a jot to most of CommBank’s 800,000 shareholders. They are the ones who benefit most from the bank’s 4% dividend and its unrelenting capital growth.

If you’d accumulated 10,000 shares in the 1990s you’d be a millionaire now on that shareholding alone.

Almost all fund managers and investment advisers will tell you everyone should have at least one and preferably two major banks in their portfolios. Generous franked dividends, seemingly endless capital growth and ‘government-guaranteed-too-big-to-fail status’: reasons enough for most. All of the banks indulge in risky derivatives and hedge fund trading and support organisations that ethical investors avoid (mining, oil and gas, alcohol, tobacco, arms, gambling to name a few). But there’s no law against it.

Let’s climb into the DeLorean then and return not to the future but the past – 1991, an era that gave us “the recession we had to have” and which ushered in a cavalcade of high-profile privatisations. Great Scott, Marty!

The Hawke/Keating Labor governments decided to offer government-owned institutions to the private investment market. CommBank, Telstra, the Commonwealth Serum Laboratory (CSL) and what we now know as Australia Post were among the biggest. At the time, the Commonwealth Bank was listed on the Australian share market and those who got in on the public float bought shares at an issue price of $5.40.

Last time I looked, CBA shares were trading at $100 and they have been as high as $110 in the past 12 months. The most recent dividend was $2.10, a yield of 4%, fully franked, which means investors get a tax rebate.

CommBank’s website offers a large slice of the institution’s history, from establishment in 1912 to present day. It’s a big number to get your head around, but what was once the People’s Bank has a market capitalisation of $172.64 billion. It employs 52,000 people.

Like all four of major banks (and some smaller ones) CommBank has not escaped scandal and opprobrium.

The Hayne Royal Commission into the banking sector in 2017 found widespread failures of governance and compliance in banks and other financial institutions. These lapses led to failures to detect and address misconduct, failures to report misconduct to the regulators in a timely manner, or even failing to report it at all.

Last year CommBank exited the discredited financial advice business, a sector which attracted a lot of the criticism within the banking inquiry.

The Australian Financial Review’s ‘wealth editor’ Alek Vicovich reported in October 2021 that CBA was closing down the last of its financial advice operations. CBA had previously operated its own financial planning subsidiary, Commonwealth Financial Planning, which employed full-time advisory and call centre staff. Other banks operated under the ‘dealer group’ model, which meant licensing self-employed companies to give advice. .

During the financial scandal-plagued 1980s, CommBank, like many others, lent money to entrepreneurs it should have been keeping a better eye on. As is always the case, large losses from bad loans are ‘written down’ and disappear forever from the balance sheet. Investigative financial journalist Michael West has written reams on the banking sector if you want to go down that particular rabbit hole.

The curious thing about a bank is that in its raw form it is simply a vault where customers keep their money. In the pre-privatisation era, the bank paid its customers interest on the money it safeguarded for them. Not a generous amount, mind you, but enough for generations to learn the value of thrift and establish savings habits. Then came privatisation. The bank still paid interest (as it also charged interest to customers who borrowed money to buy a house or build a business). Along the way (the Reserve Bank started keeping track of it in 1997), banks started charging a fee for service. In 2021 the total fees charged to household customers by all banks exceeded $1 billion.

As the RBA says, privatisation in Australia started in earnest with the sale of the first tranche of the Commonwealth Bank in 1991.

“The factor supporting its privatisation was the newly introduced capital adequacy guidelines for the banking industry. These meant that expansion by the bank would require increases in its equity base, which in turn would probably involve continuing calls on the Commonwealth budget.”

Public Trading Enterprises (PTEs), have been sold at both the State and Federal levels of Government in Australia. Sales since 1990 of former Commonwealth assets totalled about $30 billion (including the first stage of the Telstra privatisation). State Government sell-offs raised a similar amount.

It’s a bit bewildering when you consider that this rampant capitalism was ushered in by a Federal Labor government and was oft-repeated at a State level, by Labor and Tory-led governments alike.

The market success of the Commonwealth Bank was replicated and then outdone by the public sale of the Commonwealth Serum Laboratory. In 2020, economist and prolific blogger Professor John Quiggin aired the latest instalment of what he calls “The strange case of CSL – paying for what we used to own”.

Prof Quiggin makes the point that the Federal Government was about to shell out more than $1 billion to a company it used to own. The deal with a CSL subsidiary, Seqeris, involved building a new vaccine manufacturing plant in Melbourne to produce vaccines for influenza and Q Fever, as well as anti-venenes for snake and spider bites. (It would have been kind of handy to have a government entity researching a vaccine for Covid, wouldn’t it? Ed.)

When the Keating Government privatised Commonwealth Serum Laboratories in 1994, the share price of $2.30 was a ‘spectacular bargain’, Prof Quiggin wrote. Investors got their money back 500 times over. That beat even the Commonwealth Bank float, where investors got about 50 times their money back.

The reason the price was so low was, in part, that CSL was not a household name. Prof Quiggin and Independent Australia colleague Clive Hamilton investigated this float, concluding it was “one of the worst privatisations entered into by the government”.

Socialist rhetoric aside (not that it’s a bad thing), those who bought CSL shares at $2.30 and acquired more as the price improved are now sitting on a pharmaceutical gold mine. The shares are currently worth $295 and earlier this year almost cracked $320. CSL pays a paltry dividend (0.90% yield) but I doubt it would bother anyone who bought 2000 CSL shares at $2.30 (now worth about $220,000).

There you have it, dear reader, a brief time travel experience back to the heady days of privatisations, done so governments could reduce debt and avoid future financial liability.

I clearly recall banking sixpence a week (half my pocket money), clutching my passbook as if it was a passport to the future. Maybe you had one too.

Disclaimer: The author is a customer of on-line broker Commsec, a CommBank subsidiary, from which a lot of the research was derived.