Transcript of Question & Answer Session Panel Participation at the Australian Payment Summit

Okay, we're on. So welcome to the track session. The topic that we're going to cover here is to do with resilience in terms of cash, and how some markets and jurisdictions are moving towards cashless, and that sort of famous conundrum that we're seeing in many markets where digital payments are taking up a much bigger chunk of the pie. Cash at retail and commerce is diminishing, but in some markets still, cash is still growing. In some markets, it's even double digits. In Australia, the Governor mentioned yesterday that it's, from a value perspective, it's actually the highest it's been in many years, or from a GDP perspective, I believe.

So we're going to touch on some of those things from our perspective, currency research, many of you know because I introduced myself yesterday, that we're looking to bridge that sort of gap between the payment side, which is why everybody is mostly here, and the cash world, and to really get some information so that everybody can really understand what is happening in some of these markets, why they're driving towards that, and what happens when that drive becomes a point where it becomes a concern.

So we've got two wonderful panellists. Melissa Hope, who's been at the Reserve Bank for more than 25 years in a variety of departments, including human resources, economic group, and financial stability, is with us. And two, they'll both do an opening, but first Gijs Boudewijn from Netherlands, the chair of the payment systems committee, I introduced him yesterday as well, and also at the European Banking Federation, will give us a bit of an oversight as well from the European perspective and some of the initiatives that have happened out in that field, and also some of the consequences and some of the factors that could come out of that. And we hope to have a bit of a discussion after the two introductions, and we welcome everybody of course to participate, so raise your hand. We'll have microphones around. But with that, I'll hand it over to Gijs to start us off.

Well, thank you. Well, first it's great. I was very much afraid. I said to Dave Birch, it's just not fair that they put us against the big Dave Birch, who is next door, so I'm very glad to have you all here. I can promise you one thing, it's going to be a little bit of a chaotic few minutes, slides from me because I improvise a little bit. It's about cashless, or less cash, of course, it's not about cashless. It's about less cash, and I'd like to give you a little bit of a perspective from what we call, well the Dutch, we like behind the dikes, otherwise we drown, and a little bit from the rest of Europe.

So my improvising is a little bit this. Who of you love the left one or the right one? I mean, look at how ugly these cards are. I mean, you've got all these security features hidden in an ugly piece of silicon which only machines can read, whereas you have these lovely bank notes, and yes there is Brexit, I know, but I'm not going to talk about that. But all the security features, they're a real treat to the human senses, aren't they? They're beautiful, and European Central Bank realised that too, so we have this very short little video for you. Can you start it, please? Hope it works.

I mean, it's almost a sensual thing. Chris, firm. Look at it. Isn't it amazing? Wow.

[Video is played]

Look at it. Isn't it beautiful? Need I say more? Well, that's enough. It goes on for five minutes, so this is not, but I mean, look at the beauty of it. So I felt almost guilty that I'm going to do a little bit of a different story, especially for Melissa, I put this in there. I mean, if I go back to the left slide, I mean, banknotes must certainly win from a beauty perspective, right? But continuing that.

So the Netherlands, well, for those who don't know, it says Denmark, but it's not Denmark. Amsterdam is not the capital of Denmark. It's the capital of the Netherlands, which is the red circle thing, and we are, well, down there we are the biggest, we are, of course, you can see where we are now, and where I'm from. It's a long way, The European Union, you can look at as a bit of a complicated thing with the Eurozone and Europe and Brexit, you may have read about it, but I won't bother you with that. I'll talk about the Eurozone mostly.

But first, my own country is one experience. The Dutch, we are the champions within the eurozone in terms of what we count as cash versus cards. We are only counting transactions at the point of sale, because that's the only reliable figures we really have. We know the exact amount of debit card payments, and the central bank, very, as exact as they can monitor the cash payments at the point of sale. So the figures we're talking about here are transactions, actual transactions. We cross the 50-50 line at the point of sale in 2015. I'll come back to that later. And today as we speak, we are probably at 62% card payments versus 38 cash.

It's sometimes very confusing, because if your people from, the colleagues from the Bundesbank in Germany, they will show you different figures, and will talk about all the transactions, or the value of transactions, so you always have to realise, what are we talking about. Are we talking about the amount of cash in society? Or just what from the perspective of banks and retailers and savings and efficiency and security is the real interesting thing to monitor, is what's going on at the point of sale, because that's a really, and we will come back to the amount of cash in society, which has no relation anymore to what's going on at the point of sale.

So when the … I don't know how to get back, probably the red button?

To the left.

Yes. So I'll come back to that later. We have a vision in the Netherlands, we'll come back to that later. So now it's 62%, and in society, as a whole, we set a new target which we think is a reasonable target for everybody, looking at the trends, and we'll probably be there a little bit before 2025, that we shall have at least 75% card payers and 25 cash 2025, which is a pretty conservative estimate, I guess, but everybody can live with that.

If you look at what's going on in terms of number of transactions, it's a small country about three times the size of Sydney, 17, 18 million inhabitants. This year, we will have a little bit over four billion debit card transactions, and 2.6, I believe, cash transactions, and the value, of course you can see is totally different, more than €100 billion, about 110 I would say, in 2018, and 30 in terms of turnover, cash, everything at the point of sale, because that's all we measure, monitor.

Well, coming up here, two things struck me. I flew in from Hong Kong here on the 24th, and this surprised me, a commercial on the TV screen in the plane, imagine living in a cashless world. I said, "Well, that's what I'm going to talk about, is the thing, they're going to talk about it here, too." And buying the belt I am wearing, because I forgot my belt. I went to Market Street and bought a belt, and there was this sign on the till. If I had cash, which I didn't, because you see, I have not withdrawn one single Australian dollar yet, and I've been here since Saturday night. I mean, that's more or less the same as in my country, I would say.

So what's the future of cash in the European Union? Well, we got the Nordics, especially Norway and Sweden, which are going extremely fast. I will not repeat all the words, there are some quotes from the central bank, presidents, governors, but they are the cash payments, sorry, the card payments … the cash payments are, well let's say 10% at the point of sale. They're pretty extreme, and you can also see what it does, the nominal value in relation to GDP. And that's something really different in Sweden, that really goes down. Somehow, in Sweden, the cash really disappears from society, not just at the point of sale, so it's totally opposite of what the governor explained yesterday, and what we see also going on in many of the other countries.

And somehow, in Sweden, cash is really disappearing from society, not just at the point of sale. Apparently, the Swedes are not hoarding it, so I can't give you a good explanation for that, but it is one of the countries where the amount of cash in society actually goes down, but there's not a … And then you get stuff like this, the e-krona, because they, this is also a quote, that the Riksbank, which is the federal reserve in Sweden, they believe that the last banknotes might be seen around 2030, and then what? So they are one of the first studying, and I think many other central banks are looking into, not necessarily a cryptocurrency-like thing, but an e-krona in whatever shape or form, whatever technology you would want to use for that. But it would still be government-backed currency, not self-anchored currencies like cryptocurrency, because they're totally useless for, used as a fiat currency, as you will confirm hopefully.

So this is going on. So if you really think about it, if we don't have banknotes, should we have e-notes, which is a funny thing, but they're thinking about it, and Sweden is the one that's most advanced. However, what we also see in the Nordics is that it has been going a little bit too last, and now there's a call for legislation, because … we'll come back to that. And in the EU, there are very large differences, so the Nordics, you can see Norway, 11% cash, Sweden, 13% cash. The Netherlands, is a little bit outdated, at the time was still 45% cash. But if you look further down, the further down south in Europe you get, Malta is the one at the bottom, has a 92% cash usage. So they are the champion, and typically, this is a typical European phenomena, the further north you get, the more advanced paying systems in general are, and this applies also to cash and cards.

So in the Eurozone, which is a part of it, the Dutch are, together with the English, but they're not part of the Eurozone. I'd say the champions in the debit card payments, and the Nordics outside of the Eurozone. Yep, that's … And for historical reasons, it's good to note that … And Germany is very, cash is very resilient. For some reason, the German population is very much still relying on cash. They really are one of the cash champions still in the European Union.

Well, and meanwhile, I've already shown it, well, cash is going down, of course, just like was shown yesterday by the Governor. The European Central Bank is still printing these 100 and 200 Euro notes, which I have personally never laid hands on. You can't get them from your bank unless you specifically request it. ATMs don't go beyond €50, so where are they? Well, about a third of the euros are kept somewhere across the globe outside of the European Union, lots of it in Russia, we know. So it's hoarding, and for whatever economic purposes, but not for transactions at the point of sale, for which you can't use, because retailers will not accept them anyway, because they don't have the change for that.

However, from a consumer preference perspective, the picture's not that bleak for cash, because these are sources from the European Central Bank and the Dutch Central Bank and the German Central Bank … there's not a point here, I think. Yes, there is. Well, this is the Netherlands. What you can see is that yellow is cash. The preference for, so the consumer preference is to use cash or cards or credit, neutral cash cards in shops, so what you see is that typically, a lot of people still prefer cash. This is Cyprus, Malta, and the further down the line you get, Finland and so on, Estonia, the lower the preference for cash gets. So the consumers still like cash, and also in shops, same sort of survey. This is just the Netherlands, by the way, not the eurozone, but even if there are many shops, this, by the way, an example from London. I couldn't find one on my phone from the Netherlands. I always take pictures. But this is typically the type of shops where they refuse cash for hygiene purposes, for security reasons, but also for the cost and convenience for the consumer, to just refuse cash.

But the good news is that, overall, at least in my country, 96% of shops all over still accept cash. And the survey also said that most retailers still believe they will by 2022, that was the question, do you still expect to accept cash in 2022, it was still about 80% that said yes, I think I will still accept cash.

So, but what we have been doing, this might be a little lesson learned, because we are a little bit special in Europe on that, because when we crossed the 50-50 line in 2015, it said, okay, but where is this leading us, and what are we going to do about it, because it is going down. It's the consumer preference. They want to pay with cash, the retailers want it, so the process in itself is irrevocable. Customer behaviour has changed. The new generations, they don't use cash. The retailers prefer electronic. However, so they should basically be free not to accept cash, but we believe from a societal perspective, there are limits to that freedom. Cash is still legal tender, and typically also, the European Commission and the European Central Bank said, well, especially in monopolistic situations, i.e., you want to pay for a passport, or you are dependent, you have to buy medicine, etc., you should have, as a consumer, if you want to pay cash, you should be able to pay cash. So there is a thin line that's where you shouldn't cross the contractual freedom, which is the basic principle.

So that said, if we accept cash, needs to remain available to those who want it and those who really need it, and of course, indeed, as an ultimate backup, but we had a brief conversation, yeah, ultimate backup, but if the ATMs don't work, you can't get cash, right? So, for instance, in my country, since we've now become so dependent on the electronic infrastructure, there's a legal requirement for 99.88% uptime of the electronic payments infrastructure, because we are so dependent on it. And this is by the way the only country in Europe that we really have a law for that, and it wouldn't surprise me if other governments would be inspired by that example.

Another effect is of course that banks who still operate the cash infrastructure, they must cooperate to keep the cost of cash distribution and recycling, of course together with the Central Bank, to keep it affordable. And in my country, what we've seen or come to that, you have to share cost. One of the things we've done, we have this, what's called a National Payment Council here. We call it the Social Forum on Payments, where all stakeholders together with the banks and presided by the central bank. We sit together to sort of talk about what should we do, where should we be going, and we as an association, we monitor the availability of cash in the country based on ZIP codes, and every two years we produce a map of the Netherlands. We are very, very densely populated, more than 360 people per square kilometre, and I think Australia has three, or something.

So this is probably not very feasible for all of Australia because we would be mostly red, I guess. So these are the areas where there is no cash available, no cash facility available to the consumers within a five kilometre radius of where they live. So this is felt necessary and this is what we monitor and this is what we do, but again, the question is how do you keep that affordable? This common goal and that's why the banks, in 2015 decided to integrate all their cash centres into a new joint venture, which is called GSN, which is Geldservice Nederland, which just means money, servers, Netherlands, and which basically does all the recycling, packaging, etc in coordination with the Central Bank and it would service the ATMs, and this year, the banks are also decided to pool their ATMs.

There's only three large banks in the Netherlands, ING, which has a presence in Australia too. I noticed a Rabobank, and ABN AMRO and they will pool all their ATMs into a new look. It looks a bit. Well, it's a matter of taste. It's doesn't look as good. This one is, I think there's just a 100 euro note, which is a lot more beautiful, but anyway, this was the common design, and the pooling of the ATMs will enable the banks to, while maintaining the coverage I showed you on that map with 25 percent less ATMs, which of course is a huge, huge cost saving. And as a banker you would probably know what it costs to operate an ATM on an annual basis. So my conclusions and remember cash ain't free, well also in the European Union, but apparently all over across the globe cash is on its irrevocable decline into history. Sorry to say it will take some time because we will need it for many years in many countries.

If you look at the European Union, there are huge differences between the north and the south. For us, the challenge is how to guide it in a responsible way, in a socially irresponsible way, and keep it available for those who really need it. As long as they really need it, we don't think, at least from the Dutch perspective that legislation solves anything. We have a common understanding what we feel all parties or market participants, all stakeholders, the central bank, the government that we should do this together. So there's a shared vision on what the future of cash in my country should be and this is also the basis also from a Competition point of view, the Competition Authority based on that vision allows the banks to cooperate in the cash distribution. Otherwise, you might have competition issues, but it is part of the bigger picture.

And lastly, more philosophically, whose problem is this anyway? I mean, who should bear the cost of the last few bank notes? Is it really the banks? Do they have a legal obligation and what we also hear, of course it's nice fintech. But how do they commit to also sharing part of the burden of keeping also this part of the payments infrastructure, alive. So there's this typically, the old incumbent banking thing of course, but there is some truth in who pays by the end of the day for the payments infrastructure at large, which is not only having a nice app on your mobile phone, but it's also about who's going to pay for the last ATM and that's my last slide.

Thank you. Gijs. I would make two comments on what you said, and of course I live in Spain, so I have to defend the south. I don't think that it's perhaps so much that the advancements in payments has happened in the north, it's the adoption. Because in the south as you've seen, there's still a lot more cash usage at the retail or commerce, but those solutions are still there. The BBVVA is the second biggest bank in Spain and they've gone into the digital ecosystem. They've offered all of the latest products and they're up there in the quadrant we saw earlier on in someone's presentation. So I think it's more of a cultural thing …

Absolutely.

… of who uses what, just like Germany, I mean Germany, the fact that they're up in that median of Europe …

Germans pay taxes, and well, the further down south you get …. I mean …

That's true, I pay taxes. Let's not go there.

It's culturally historically. I mean the technical means are available everywhere, but it's culture and history that determined the consumer behaviour with various drivers, fiscal or whatever drivers there may be.

And if I can add also in Austria is probably the only country and I guess probably due to the capacity of the general population, they do have a 100 euros in ATMs, so they do dispense a hundred euros.

Yeah.

Probably the only country definitely not in Spain.

No.

Mel, the floor is yours.

All right, thank you.

But again, this was specifically in agreement with the retailers who said, because we wanted to have as little change as possible. We don't want these large denominations brought to us.

Well thank you very much and thank you for having me here today. I guess I'll give a central banking perspective to cash use in Australia and I'm very encouraged at least to hear the cash wins the beauty contest, so I'm off to a good start already. But I guess the Governor really set the scene yesterday because he talked a lot about cash use in Australia and if you missed his keynote session then what you would've seen in the headlines today is ‘Cash to become niche, says RBA’. So off to a good start perhaps. But he did say his message overall was a bit more nuanced than that because he did go on to say that he wanted to emphasise that while we don't yet envisage a world without physical banknotes.

So lucky for me, it means I'm in a job for a little bit longer yet, and I also know that I can see some of my cash colleagues from various commercial banks. So good news for you as well. I'm going to go through some of the stylised facts as well around cash use in Australia and in doing so I'm going to talk about what might on the face value seem like two competing narratives. So the first of that, which actually may surprise people, is that cash demand in Australia is still actually growing. But the other which is the more familiar is that retail payments are being made less frequently with cash. So both are correct and what I'll try to do is try and show you how those two things reconcile, before summing up in terms of what it all means.

First, turning to increase in demand. This particular graph shows the value of banknotes in circulation, and so what you see is that it's still growing, it's still going up, albeit at a slightly slower rate, but it is still going up and what it's being driven by in a large part is growth over recent years in higher denominations rather than the lower denominations, although there's been some influence of the new issuance that we've been doing in terms of banknotes on those figures. So what it means in aggregate is that we've got around $76 billion worth of banknotes in circulation, which if you think about that on a per piece basis, there are around 160 billion banknotes circulating in Australia. So, that's the aggregate demand side. But we also know that the use of cash is falling.

How do we know that?

Well, every three years the Bank conducts a cash use survey, and it gives us a lot of really rich information to show us what's happening with cash overall, and what this shows is that the share of cash for consumer payments has been falling. It's been falling over a number of years and it doesn't matter how you measure it. Whether you measure it in terms of the number of transactions that are being made with cash or whether you measure it in terms of the value of those transactions.

It's all heading downwards and over a run of years. While the next survey is not till next year, we'd expect that those sorts of trends are going to continue because after all we've had innovation continue in terms of electronic payments. We've had the introduction of the New Payments Platform and that's going to further support that shift towards electronic payments.

But what the survey also does is it gives us some more information about the users of cash and why they use it and I think there are some interesting things that are worth reflecting on about that. The first is that demographics do matter when it comes to cash use. There are some segments of the community which are more reliant on cash than other segments. In particular, older Australians and lower income households tend to use cash quite a lot.

The next thing is that the size of the transaction matters and that's not surprising really. I think everybody appreciates that when it comes to the larger transactions, you're more likely to pay for that electronically or with the card, but when it comes to the low value transactions, particularly those that are $10 or less, that's when cash tends to dominate, but even there we're seeing that change. We're seeing through the run of surveys that more and more of those lower value transactions are being made with cards.

What the survey also tells us is for the people that pay with cash, why do they use cash? Why don't they use cards? The most popular reason that people will use cash is what I termed ‘merchant related reasons’ so that using cards either isn't possible because the retailer either doesn't accept cards or they have some minimum spend in terms of the amount or because people find it more attractive to pay in cash and that's because either card transactions attract a fee or because they get a discount when they pay with cash. Also important, though, is that some people just like using cash. They actually have a preference for using cash and reasons given why they have that preference might be because I actually use it for my budgeting. I only spend what I've got in my wallet. But also because for some people the way that they think about risk means that they prefer to use cash rather than cards and those risks typically relate to either privacy or fraud.

But the last thing that I wanted to talk about in this was that the survey also gives us an understanding of the reasons why people hold cash over and above just using it to pay for things. And here, high on the list is its precautionary demand. They hold it because they want some money just in case they need to buy something and for whatever reason they can't use cards. So it serves itself as a backup payment for them. And for some people though, they also have a bit more cash than what they think they really need because they're not really certain about whether or not they can get money out of an ATM or whether or not fees will be attracted to it. That last factor though isn't going to be a factor that changes because this was a survey taken in 2016 and I think we appreciate that the fees on ATMs have changed since that time.

We've got two different observations about cash in Australia. One is that it's growing and the other that it's been used less for retail transactions. So how do we make those two things seem sensible together? There's two reasons that I think are important here. The first is that the economy is actually still growing. Yes, it's true that people are making less transactions using cash but at the same time the aggregate number of transactions is growing in line with the economy. So those two things taken together would imply that the total dollar amount of cash used for transactions has grown. But the second reason is that cash just isn't used to pay for things. It's also used as a store of wealth and you've got some evidence for that effect in this graph here.

So what you can see is this is banknotes in circulation on a per capita basis and it shows for each denomination how that per capita holding of banknotes has changed over the past 10 years. So for the lower denominations, abstracting from the fact that we've issued new $5 notes, for example, growth per capita isn't very high and the lower denominations tend to be used to facilitate transactions. But where we have seen growth is in the $50 and $100 - the denominations which are more likely to be hoarded or held for wealth purposes.

But before I go on to sum up, I'll do a little bit of the international comparison as well because I do think it just helps to understand how best to look at trends in Australia. The first way that I'd like to do that is to look at how currency in circulation has changed in relation to the size of the economy for a number of different countries. And there's a couple of things that stand out here. The first one is it does show you quite clearly how much further ahead Sweden is in terms of the declining use of cash story.

In Sweden you can see quite clearly that growth in currency hasn't kept pace with the growth in the overall economy, so that as a share of GDP, currency has been falling and falling quite a bit. So it's gone from about 4% in the early 2000s to just over 1% now. But then the other thing that you see is that for other countries we're not yet at that sort of stage. In fact, what we're seeing instead is that currency is actually growing at a faster rate than what the economies are. And what that also has meant is that in a lot of these countries, that ratio of currency to GDP is actually at historic highs. So a different place to where Sweden is.

But similarly, I'll look at what card and cash payments have done across a range of countries as well, but add in some other countries that we didn't see earlier. So what does the chart show? Well, clearly that there is a broad spread trend across all these economies that cash, the popularity of cash for transactions, is declining while card payments are growing in popularity, but there are some important differences. So it does show that for those Northern European countries, so Sweden and Norway that they are at one extreme of that where cash is used quite infrequently these days, but it's still the dominant payment mechanism in Germany. The other countries in the chart, so Canada, Australia, the US, and the Netherlands, they fall between those two extremes. So absolutely cards in all of those countries are now the dominant way that people made payments, but cash is still nontrivial. It's still an important part of the retail mix.

So then just to sum up for Australia at least, cash usage still remains widespread and we haven't got to the stage that the Northern European countries have got to where your ability to use cash and to have cash accepted by retailers is getting more problematic, but things will change. The situation that we have now isn't going to be the situation we will face in years to come and innovation is the thing that will drive that. The fact that we will continue to see changes in the way that we can make electronic payments, that means that they provide better functionality that's reliable and safe. They're all things that are going to continue to drive that shift towards electronic payments and away from cash. Our working assumption though, and what the Governor did say yesterday, despite the headline, was that we think cash will remain part of our payment system for some time to come. And really the reason for that is that we feel that there's some base level of demand for cash in Australia at least at the present time that will be supported because cash still does bring some attributes that people value.

When the Governor yesterday talked about what you need to see in electronics systems he talked about they needed to be functional, safe and reliable. Each of those characteristics apply to cash in different ways as well. Cash is functional. It's convenient. It's easy to use. It's anonymous something that some people value and it's a good store of wealth. But it's also safe. You get instantaneous settlement and it's also a liability of the Central Bank and it's reliable. It doesn't rely on the Internet, doesn't rely on electricity. It does form that backup system at least at the time being for when electronic systems aren't available.

Then what are the implications for public policy? In Australia because of where we are in that cash usage picture we haven't yet felt the need for active policy to address falling cash use. But that's not to say that we're not actively monitoring developments and doing analysis and research in this field. And in fact, we have considered specific policy options which were alluded to earlier in terms of should Australia's central bank be issuing a digital currency? And we can, I guess, maybe talk about that more in the question time but the core message is we don't yet, as a central bank, see the imperative for that but we'll keep a watching brief.

And I guess the final thing that I'd say is that because of where we are in that stage of cash usage – sorry, I feel like I'm tongue tied on those two words now – we do have the benefit of being able to look to other countries, see what they're experiencing, how they're responding in a policy sense and learn from them. And maybe that puts us in a more enviable state than somewhere like Sweden where things, perhaps, have moved a little bit quicker than what they thought they would. Thank you very much.

So Mel, you being an economist coming from economist side you probably see, like many others, there's great payoffs right, a cashless society there's lower transaction costs, it gives more visibility. It can increase economic growth. It puts a little bit, may put an end to tax evasion or at least gives that visibility side.

And then there's the other side of that, the other balancing side. Where privacy may be now disappearing. And also, as the Sveriges Riksbank mentioned the Governor at one point said he's somewhat concerned that the power of payments is going into private hands and they're losing, perhaps, control. And that's why they're more advanced, perhaps, in the digital currency argument. Where's that balance? Where does that sit in Australia? How do you see that?

In terms of the increasing role of private players in the payment system?

Yes, yes.

Maybe I'll start off with talking at least about the efficiency around the payment system and having electronic payment systems because that was the first part of what you were talking about. And I guess that is where we do view that as important and have been taking active steps as a central bank to support that. So the New Payments Platform that was an initiative that first came out of a strategic review of payments done by the Payments Systems Board. That was presented to the industry with a view of these are the sorts of developments that we want to see payments systems take. What can the industry do to meet us on that? And that's really where NPP came from. From the central bank point of view what we have a strong desire for and remit for is that we've got both safe and efficient payments systems. And we've been working in ways to do that and with electronic systems as well.

I guess that's an important dimension. We don't see cash use or cash as a payments instrument as being the thing that must be pursued. It's a part of our payments landscape but we recognise the importance of electronic and actually encourage and promote that as well.

And then from a European perspective, Gijs, there's some markets or jurisdictions that are promoting those precise systems with a purpose of to drive a little bit of the less cash, as you say. And even in some of the markets it happens by just through, not immersion but movement of some of the innovation. For example, in the UK, contactless has really given a big oomph to less cash at retail or commerce. Last year it was a 5% drop. Whereas in the previous years they were seeing a 1-2% average drop. Do you see any markets that are pushing that in Europe? I think you mentioned Italy might be one of those.

Absolutely. Well, you mentioned contactless. For instance, in the Netherlands 60% of all debit card payments are now contactless and they are all under 20 euros. And this is underpinned by an agreement between the banks and the retailers not to have these, I'm not sure of the wording you used, but there's a minimum amount for debit cards. You can pay debit from zero to whatever you want. Typically, this was only made possible because we had joint cost studies which turned out that, which proved that on average for any amount paying with a debit card is better, cheaper and faster for the retailer.

The latest calculations, together with the central bank were that contactless, total cost of ownership. Not the bank fees, make no mistake here. The total cost of ownership for a retailer on average for a contactless debit card payment is 15 euro cents. Right off of the terminal anything labour costs, teller et cetera. Whereas a cash payment costs almost double, 29 euro cents. And this is a joint cost study of retailers, banks and the central bank. This is a huge incentive for retailers to promote electronic payments.

It may be different in other jurisdictions because part of the cost of ownership is, of course, the bank fees which are extremely low in my country. The higher the bank fees, determines the tipping point there. But, on average, that's something that goes on.

The other one is that, well, instant payment is not only going on in New Payments Platform of course in Australia but also in Europe. And what we see, for instance, in my country is that the person to person instant payments are taking a huge chunk of cash payments between consumers. I can do instant payments now, just send a little payment request to pay me now and it's being credited instantly. Whereas I would previously give you a 20 euro note, and I'll just send you through WhatsApp the payment request and it's paid instantly. Also there are consumer to retailer payments but also the consumer to consumer payments that are being substituted, made possible by instant payments.

The expectations are there and, well, the example I gave of the low value payments, so now in Italy I was in Milan a couple of weeks ago and then they announced a new initiative, the micropagamenti, they call it in Italian which is payments below 20 euros. Well, we thought micropayments are a few cents but in Italy it's below 20 euros, they said we go for cards too. That's what we've been doing.

Especially in the southern jurisdictions you see more government, more central bank pressure that they have to do something for a variety of reasons, of course. But where they have been a little bit dormant they have woken up and they say well, guys, this is the global trend, we should do something about it. And especially pressure I think by, or nudged by the central banks.

If we move it a little bit and take the angle of resiliency, if we look at it from that perspective where some of these markets are getting to that point where they're looking at it as now what do we do? You mentioned if before in your presentation. When it gets to that point where, who's going to bear the costs? And what responsibility do the banks … In the past the central banks used to have all the responsibility, they had it all. It became outsourced, it became pushed out to the commercial market. Now the commercial market is doing it and they're bearing some of that cost. As it becomes more costlier what else will have to be done apart from consolidation, as you've mentioned, in Netherlands? Is there anything else that can be done? Or how do you see that from the perspective of what Netherlands has done? Do you see yourself, do you see this market going towards that way? Because your trends are going in a similar way, aren't they?

I guess the way that we've approached these sorts of issues is that fundamentally we look for an industry-led approach to things. When there are these sorts of changes hopefully as long as there's not a market value you get to the right outcome, that incentives will drive you to an optimal outcome. What's the role for a central bank in that environment? And it's only if you don't think the market can get there, at least when it comes to the payment system, the Bank does have responsibilities in terms of ensuring, as I said before, that we've got a safe and efficient payment system. We look for the industry to deliver those outcomes and will only look to become involved if we think that they can't do it themselves.

Do you see Australia being cashless in five years? 10 years?

I think there's a possibility of it. I don't think that it's in those sorts of time frames though. Because I think that maybe the way that, at least, I think about it is that people like choice. And it's important that they have those sorts of choices available to them. They've got that choice in terms of electronic payments. Whether they use card, debit, credit. Whether they use now NPP as part of that payment landscape. But cash is just another alternative. And I guess what I know I do is that having a little bit, somewhere, just in case, it's always a thing that gives you a little bit more comfort. Knowing that your kids are …

That fall-back, it's always there.

That's right.

I don't, I don't. I don't have anything and I feel so comfortable in a very far away country.

I'm far away from home and I don't carry any cash.

I've got caught out a few times. And in fact, one of the times was just recently. I was, ironically enough, Head of Note Issue in charge of cash distribution Australia-wide and I was out at a cash centre. I was catching a taxi back having been at the cash centre and then he suddenly realised, "Oh, I forgot to tell you. If you want to pay by card you can't because my terminal's down. You've got to pay by cash." And I thought, "Oh stars. I don't know whether I can do that."

How many people have had that? A few. I mean, I had the same thing in KL and ended up at the airport. I said, hold onto my bags. I have to go inside to an ATM to pay you by cash.

What is the conclusion? Should you always carry cash or should you promote electronic payments better? And make the infrastructure more resilient?

For the time being, always carry cash.

But in this instant, it was the Telco that was down.

Yeah, yeah. You have to look at the whole infrastructure.

That's right.

It's not just the banks and the switching and authorisation systems. That's what we monitor in the Netherlands because it's the Telcos, it's the Wi-Fi networks of the shops. I mean, your card may be, there's a lot of factors that determine if you can make the electronic payment. You have to look at the whole value chain and the resilience of that. Because there's lots of factors there and we've done that together with the retailers. Big projects. Dual solutions and stuff like that. Special certified lines for supermarkets. There's a lot you can do together to improve the resilience of the total infrastructure. Because it's not just looking at the banks switch, is it up or down. I mean, it's just … well, a very important part but it's only a part of where it can go wrong.

Yeah, and again, mentioning if there's any questions from the floor, please raise your hand. We'll pass some microphones around. The Governor also mentioned yesterday about how he felt, and probably a lot of other jurisdictions, that the systems just aren't robust enough just yet to be able to rely on them 100%. Will we ever get there? Will we ever get to that level? You had mentioned something about Netherlands having to have a guarantee, almost.

Well. If the sky is falling, yeah, but you have to accept the reality if the sky falls down, we're all dead, right? So it stops somewhere where you can make backup from backup from backup from backup. So it was felt okay that if we have a 99.88% availability that should be … Acts of God you might always have. That was deemed as a good level that the industry can do. Because you will never reach 100%. You might have it but you can't plan for it. There can always be acts of God. But in case of an act of God you probably have a different problem than not having access to cash.

Yeah.

Yeah.

This is what we say. You have to be a little bit pragmatic otherwise the consequences are crazy, of course. One small remark about, maybe you have a vision on that. If you look at Sweden, how on earth, where do the Swedes store their wealth, then? They probably not all keep it at the bank. Maybe they keep the Euro notes.

I have a bit of an answer. It's probably Euro notes. Precisely.

They don't hoard it. They don't store, keep their storage in Swedish Krona notes but they keep it in Euro notes. Probably.

Could be. Yeah, yeah.

I think we're running out of time but we'll open up to anybody who's wanting to make a comment. Yes?

I just wanted to touch on the subject of central banks and seigniorage, the process of which central banks manufacture currency and then sell them on face value and benefit from the difference. Given the fact that we're, all this talk about cashless society and that we're moving towards a cashless society and obviously in several jurisdictions they've gone far beyond that. Or moving to that. If this is occurring more towards central banks and governments and they're losing out on revenue from these operations, does that in effect change the way the central banks regulate or operate the industry? Just a query, really.

I'll just note that a former central banker has just asked that question. It is a good question. But I guess the core point is that we don't make policy on our ability to make money. If we do that, we would operate both in the foreign exchange market and in monetary policy in a much different way to what we do now. We operate policy to generate good outcomes for the Australian public. If going cashless means that seigniorage isn't the revenue source that it was for us previously then that's just a by-product of generating the right outcomes for the Australian people.

Right. My takeaway is we're not going to be cashless any time soon. Sorry, to all of those naysayers. All of those killers out there. And in the meantime, we're being told we're out of time. Want to thank Mel, thank you, and Gijs, thank you very much for your time. Appreciate your …

Thank you.