Published by: Ngoc Han Luu

Source: CoinTelegraphy - Digital Payments

In the span of a few decades, Australia’s behaviour in everyday transactions has shifted to rely less on cash. From the traditional exchange of flimsy cash and coins to more durable polymer plastic banknotes, cash faces a new era where physical currency is gradually becoming obsolete. The shift from electronic wallets (e-wallets) and contactless cards has become more prevalent. It has not only altered the way Australians perceive their transactions but has also become the conscious preference in today’s modern society.

The catalyst for this accelerated adoption of e-wallets or contactless cards can be traced back to a global event that reshaped norms and priorities—the Covid-19 pandemic. Constantly being informed to follow precautions to prevent widespread contamination, both consumers and retailers became increasingly reluctant to engage with potentially contaminated coins and banking notes, prompting a swift transition towards contactless payment methods. 

Now, with e-wallets firmly integrated into the fabric of daily life, this article explores the advancement in technology in banks and the challenges that arise as a result.

Contactless payments on the Rise 

Contactless payment has gained its dominance amongst people as it offers a secure method of payment without needing physical contact to make a transaction. Whilst cash has always been accepted as the king of all payment, its position has become far more precarious in recent years. In 2006, Australia was introduced to contactless payment, also known as "tap and go" payments. Since then, there has been a noticeable trend in the decrease in Australians using cash over the years. According to RBA, cash used to make up around 70% of payments in 2007, which dropped to 13% in 2022 (RBA, 2023). This shift to using cashless stems from the convenience and seamless payment in cashless transactions including (1) high-speed transactions, (2) physical ATM-free and (3) secure transactions. 

Source: Mastercard - The future of Payments is Cashless

Mobile banking apps and the Security measures 

Introducing mobile banks has immensely pushed a large favour on cashless transactions now as most younger generations claim that when going out, their phones itself is sufficient to leave the house without needing to have 'cash-in-hand'. However, many are aware that storing sensitive data such as your finance in an app has its own dangers and concerns. From malicious cyber intents in stealing, one's personal data to concerns about surveillance and privacy infringement, it is crucial for banking apps to invest in their security system to put their precocious measures when designing a secure and reliable way to prevent others from accessing client's personal data. These include:  

Biometric Authentication 

Biometric authentication enhances the security of mobile banking apps by utilising features unique to individuals, such as fingerprints or facial recognition, to authenticate users before transactions. This method ensures that only authorised users can access sensitive financial data stored in the app. Additionally, the underlying technology employs asymmetric cryptography, which utilises two separate keys; a public key for encryption and a private key for decryption. This ensures that data exchanged during transactions remains confidential and protected from unauthorised access or interception. 

Data Encryption 

When linking your banking card to your phone, your banking app employs encryption, a form of symmetric cryptography, as an additional security measure to safeguard your sensitive financial data from unauthorised access. The way this works is the device to create a transaction generates a unique key specific to the payment terminal, encrypting your card number, expiration date, and CVV code, which can only be decrypted by the terminal's matching key. After each transaction, the key is discarded, making it challenging for hackers to reproduce the one-time access code, unlike the fixed magnetic strips on credit cards, which are more susceptible to duplication.

Source: ScienceSoft - Mobile Banking Security Components 

Unpacking the Drawbacks 

While 40% of Australians now comfortably relying solely on their mobile devices with digital wallets for transactions, this has prompted banks to adapt their business models to accommodate this trend, leading to a gradual move towards becoming cashless (AusBanking, 2023). However, amidst this transition, small businesses face several challenges that must be addressed.

One of the primary challenges for businesses in a cashless society is the increased reliance on technology. With payment processing systems being predominantly digital, any downtime or malfunctions in these systems can lead to lost sales opportunities and reputational damage. Recent cases, such as the Optus and Telstra outages, have highlighted the risks associated with such technological dependencies, affecting millions of businesses to be forced to close up their store (Ortolan, 2023).

Source: SBS - Optus' Apology for 2023 Internet Outage  

Moreover, the shift towards a cashless society poses exclusionary risks, particularly for certain customer demographics. The elderly, low-income individuals, and those without access to banking services or digital technology may face challenges in participating fully in the cashless economy. To maintain inclusivity and accessibility, businesses must ensure that alternative payment options are available to accommodate customers who prefer or rely on cash for transactions.

In addition to the challenges faced by businesses, individuals also encounter difficulties in managing their finances in a cashless society. The ease and convenience of digital payments, including cards, mobile, and contactless transactions, have led to a phenomenon where customers who pay digitally tend to spend twice as much as those who pay in cash (Nelson, 2022). This trend raises concerns about financial independence and responsible spending habits. To address these concerns, there is a growing demand for banks to provide tools and calculators that allow individuals to model financial scenarios and assess long-term outcomes. A survey conducted by KPMG found that 90% of Australians are seeking such tools to aid in financial planning and decision-making (KPMG, 2019). By empowering individuals with the necessary resources and information, banks can help promote financial literacy and independence in a cashless society.

Keeping up with the Demand

Overall, Australia's progress towards becoming a cashless society is inevitable. Yet, challenges like businesses' reliance on technology and individuals' financial management worries need collaborative solutions. By tackling these hurdles collectively, we can make the advantages of a cashless society available to everyone, shaping a future of effortless, secure, and inclusive financial transactions. Addressing these challenges requires collaboration between businesses, financial institutions, and policymakers to ensure that the benefits of a cashless society are realised by all members of society while mitigating its potential drawbacks.

This article is published by CCA, a student association affiliated with Monash University. Opinions published are not necessarily those of the publishers. CCA and Monash University do not accept any responsibility for the accuracy of information contained in the publication.