Cash is best while Card plays second fiddle

The RBA has stated that Australians are cash-based society but that the use of the credit card and debit cards is growing as customers seek more suitable payment methods.

RBA survey reveals usage of cash, debit cards and credit cards

The Reserve Bank recently conducted a survey of consumer payment options and found that 70 per cent of all transactions were cash.

The survey also indicated that Eftpos, Master Card and Visa debit card payments made up 15 per cent of all transactions, followed by MasterCard and Visa credit card transactions at 9 per cent and American Express and Diners Club Cards at 1 per cent.

Cash is used the most for low payments under $10 and for 75 per cent of payments between $11 - $25 for items such as take out and drinks at the pub. On the other hand cheques and BPay are used for higher value consumer payments above $500 and make up 29 per cent of payments above the level.

The RBA also noted that cards were used extensively across all but very low transaction values. Transactions between $25-$200 debit and credit cards accounted for 45 per cent of transactions.

The RBA's study has also shown that Australia has changed dramatically over the past 10 years as the international trend toward electronic payment methods.

Incentives increased use of credit cards

The study also found that participation in loyalty or reward programs and the availability of interest free periods tended to increase the appeal and use of credit cards.

The study also found fascinating substitution patterns between consumer's use of credit cards, debit cards and cash.

They also discovered that interest free periods cause a move to credit cards from debit cards; loyalty programs induce substitution from cash. For most consumers, loyalty programs increase the probability of credit cards use by 23 percentage points and reduce the probability of cash use by 14 percentage points.

The research also showed interest free periods on credit cards were very attractive to consumers and that Debit Card use was relatively unaffected by whether or not a loyalty program backed up the card.

The RBA stated that where there was no financial cost to accessing the line of credit because there was an interest free period, consumers tended to use a credit card instead of a debit card.

Where there is a cost in the form of interest changes, consumers were more likely to use a debit card.

The research suggested that the introduction of loyalty programs accounted for at least some of the rapid growth in credit card use observed in the second half of the 1990s. Finally the study noted that even with our cautious estimates the results have shown that debit cards have remained the predominant payment instrument over the past decade in the absence of the price effects from loyalty programs.

Published on July 7-th, 2009 in Credit Cards
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.