RDP 2014-05: The Changing Way We Pay: Trends in Consumer Payments 5. Cards

Between 2010 and 2013, the share of the number of payments made by card increased by 12 percentage points and the share of the value of expenditure made by card increased by 10 percentage points (Table 4). The largest contributing factor was the increase in card use at the point of sale, which rose by 6 percentage points between 2007 and 2010 and 12 percentage points between 2010 and 2013 to around 40 per cent. The shift to remote payments and the reported rise in the use of cards for remote payments also contributed, but to a much lesser degree.

Growth in the use of card payments at the point of sale was likely to have been driven by a range of factors. First, the number of card terminals over the six year period increased by 35 per cent, suggesting that the number of merchants offering the option to pay with a card increased.^[11] In addition, new card technologies appear to have influenced consumers to make greater use of cards. Contactless card payment technology has been widely adopted in Australia since 2010 and appears to have encouraged greater use of cards at the point of sale (see Section 5.1). Further, a range of other technological innovations is likely to have increased the use of cards, including the introduction of PIN authentication (which decreases the tender time of a card payment relative to using a signature) and the introduction of card-only terminals (often self-checkout machines) in supermarkets. In addition, the majority of transaction accounts on offer by financial institutions in Australia now provide an unlimited number of fee-free debit card payments.

The growth in card use has been reasonably widespread across payment types. However, growth between 2010 and 2013 was strongest for lower-value payments where cash had been (and remains) the most widely used method (Table 7). As a result, the median value of card payments at the point of sale has fallen over the six years to 2013 from $40 to $35, although it remains well above the median value of cash payments of $12.

While the use of cards increased across all merchant categories, growth has been slightly stronger for supermarkets, food retailers, holiday and leisure (Table 7). The increase in the use of cards for holiday and leisure is most likely to have been linked to the shift towards remote payments. In contrast, increased card use at supermarkets and small food retailers (where 99 per cent of payments are still made at the point of sale) is likely to have been supported by the introduction of contactless card payments technology and the increase in the number of card terminals.

The switch from cash to cards resulted in cards being the most frequently used payment method for respondents aged under 40 years and for respondents in the highest household income quartile (Table 8). Cash remained the most frequently used method for other age and income groups and in regional areas, but was used for a similar number of payments as cards in capital cities.

The results of the survey also give some interesting insights into debit and credit card use for different demographic groups. Respondents aged under 30 years made around 80 per cent of their card payments using a debit card in 2013, whereas this ratio was close to 50 per cent for all other age groups (Figure 4). Similarly, households in the first and second age-adjusted household income quartiles made considerably more payments using debit cards than credit cards. A combination of limited access to credit cards and the more widespread issuance of MasterCard and Visa debit cards (which can be used for remote payments) over recent years is likely to have contributed to the greater debit card use by lower-income respondents.

5.1 Contactless Card Use at the Point of Sale

The use of contactless card payment functionality – the ability to tap or wave a card in front of a card terminal rather than inserting or swiping the card in the card terminal – has become widespread since the 2010 survey. At that time, fewer than 8 per cent of people indicated that they had a contactless card and only 40 per cent of those had made a contactless payment in the month prior to the study. In 2013, contactless card ownership was much higher – two-thirds of people reported that they had a card that could make contactless payments – and contactless terminals were much more widely available.^[12] In the 2013 survey, three-quarters of contactless card holders reported they had made a contactless payment at some time in the past, and almost one-half recorded a contactless payment during the week of the study.

Overall, 22 per cent of point-of-sale card payments were conducted using contactless technology in the 2013 study (Figure 5).^[13] Contactless card payments made up approximately 26 per cent of credit card payments and 20 per cent of debit card payments at the point of sale. The lower ratio for debit cards partly reflects the fact that the eftpos network had not yet introduced contactless cards at the time of the survey. A small number of contactless American Express payments were reported; this functionality became operational only shortly before the survey was conducted.

The rapid adoption of contactless technology is consistent with just over half of all respondents (in both 2010 and 2013) listing speed as an important factor in choosing which payment method to use. Those who reported that speed was an important factor were more likely to report holding and using a contactless card during the week of the survey. Further, contactless payments were most frequent at merchant types where the speed of the payment may be more important for the merchant, cardholder or both – e.g. at supermarkets, petrol stations and take-away food stores, where queuing at the checkout is common.

The value of the payment also appears to influence the choice of whether or not to make a contactless payment. Contactless card payments were used for a wide range of payment values, including for values above $100 (Figure 6), which require validation by PIN or signature. The share of card payments that were made using contactless methods was highest below $10 at 34 per cent of payments, falling to around 20 per cent of payments between $50 and $100. The median value of a contactless payment ($26) was around two-thirds that of a contact payment ($37).

As expected, contactless technology has been more readily adopted by some respondents than others. The probability of having made a contactless payment in the diary decreased with age and increased with household income, was much higher for those living in capital cities and was slightly higher for males. The age effect was the strongest: while almost half of all 18–29 year old respondents made a contactless payment during the week, only one-fifth of respondents aged over 65 years did so (Figure 7).

The question arises as to whether the growth of contactless card payments has predominantly displaced other (contact) card payments or displaced cash and thereby contributed to a rise in the overall share of card payments at the point of sale.

The data provide some evidence for the displacement of cash by contactless payments in that there was a more sizeable pick-up in the use of cards for point-of-sale payments between 2010 and 2013 than there was from 2007 to 2010. The share of card payments at the point of sale increased by around 12 percentage points between 2010 and 2013, which covers the period when contactless cards became widespread, compared to an increase of 6 percentage points between 2007 and 2010. Further indications of this effect are apparent in survey data showing the change in the mix of card and cash payments by payment value. These show a decline in the use of cash across payments of all values was offset by a rise in the use of contactless card payments (Figure 8).^[14] The growth in contactless payments was also accompanied by a decline in the frequency of contact transactions for payments between $25 and $100, suggesting that contactless payments displaced both cash and contact-based card payments in this range.

Respondents who stated at the end of the survey that they had made contactless payments in the past were asked which alternative method they would have used prior to contactless card payments becoming available. The responses indicate that contactless card payments have replaced both cash and contact-based card payments. Around half of the respondents indicated that for at least some of the purchases they had made using a contactless card payment they would previously have used cash (Figure 9). However, only a relatively small number indicated that this was the main substitution effect. For most respondents, contactless card payments were predominantly a substitute for existing methods of card payment at the point of sale.

Footnotes

The pace of growth was similar between 2007 and 2010 as between 2010 and 2013. See Australian Payments Clearing Association transaction statistics at http://www.apca.com.au/payment-statistics/transaction-statistics/atm-and-eftpos. [11]

In particular, the two largest supermarket chains in Australia – Coles and Woolworths – engaged in an extensive rollout of contactless terminals across their respective stores (Woolworths 2011; Coles 2012). [12]

The use of contactless cards in the survey is consistent with other data reported by financial institutions and large retailers on the use of contactless cards. For example, the Commonwealth Bank (2014) submission to the Financial System Inquiry noted that the share of point-of-sale card payments by Commonwealth Bank cardholders that were contactless payments increased from 7 per cent to 45 per cent in the period from August 2012 to February 2014. [13]

The changes in shares in Figure 8 are based on the assumption that no contactless payments were made in 2010. The use of contactless card payments at the time was likely to be minimal, with fewer than 4 per cent of respondents indicating that they had made a contactless payment in the month of the 2010 survey. [14]