This article was originally published on January 18 2021. Over the past year there has been plenty of action around the cash system, particularly from the Reserve Bank. Check out our update at the end of the story.
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Covid-19 fears accelerated banks’ moves towards cashless transactions. But the Reserve Bank came out swinging on the side of cash – and the often vulnerable people who still use it.
The annual Monster Book Fair in the Kapiti Coast town of Paekākāriki is a big deal. It’s run by local volunteers and goes on for three days. There are thousands of books for sale, and big money gets raised by volunteers, many of them retirees, for the St Peter’s Hall restoration fund.
But last year, when the fair was over and the treasurer went to a BNZ branch with several thousand dollars worth of coins and notes, she was horrified to be told she couldn’t bank the money inside.
Instead, the teller said she had to walk out of the bank and post it in separate lots in the ATM deposit slot.
“She said ‘I’m over 70. I’m not going to stand outside with several thousand dollars in cash posting it gradually into your machine’,” says fellow committee member, Jenny Clark. “The teller saw her point and came out with her and actually did the depositing.”
In a separate incident, Clark says, another volunteer went to bank the koha from another fundraiser – mainly $1 and $2 coins, Clark says. “He was flatly told the bank didn’t accept coins.”
The problem isn’t a new one. But the move towards a cashless society has been accelerated by the coronavirus and the view (which didn’t come from the World Health Organisation, by the way) that coins and notes could spread the bug.
Banks were already keen on digital banking; it’s way cheaper for them than handling cash or cheques. And if everyone’s doing their banking online, it makes it easier to justify cutting back on the number of staff and branches.
Digital banking is also mostly more secure. And the majority of us are happy with the convenience of cards, phones and computers.
But some people are not – and community groups suggest often it’s more vulnerable customers using cash.
The harm from a cashless society
Take an older or disabled person relying on neighbours or family to buy groceries for them. Handing over their card and PIN number isn’t a safe or sensible option. Or think about someone living in an out-of-the-way place not yet served by rural broadband services, or someone who finds it too hard or too expensive to access the internet; they pay their bills in cash.
(The disappearance of cheques compounds that problem, as we discussed in this recent story.)
Think about someone having trouble with budgeting and debt. If you pay for everything in cash, you can’t live beyond your means. And at the extreme end, domestic abuse survivors often squirrel away emergency cash – $5 here, $5 there; their partners may well be monitoring the bank account.
As one commentator wrote following a story on the Stuff.co.nz site: “No cash will overwhelmingly affect poor people. By ‘poor’, I mean people who are with MSD and are actively discouraged from having a separate savings account, Bonus Bonds, shares, or an emergency fund. MSD views any money saved, as money a person could be living on that week. People on a benefit often save an emergency stash of CASH.”
“Of course, wealthy people embrace cards, especially credit cards with points, because they know they can pay it off month to month and reap the rewards.”
Reserve Bank takes the lead
The Reserve Bank is concerned. Bank research pre-Covid (2019) showed use of cash was going down overall, but still around 40 percent of us were using cash once or twice a week; 20 percent were using it 3-6 times. Six percent of New Zealanders relied on cash for their everyday needs and five percent couldn’t do without it.
Government-funded body FinCap oversees around 200 budgeting services nationwide. Acting chief executive Moana Andrew told Newsroom the closure of bank branches, combined with the move to go cashless has been difficult for many in rural communities, particularly elderly people who might not be able to use the internet and are reliant on other people to do their shopping or pay their bills.
“It’s changing the landscape for us – in a complex way and not in a good way for our clients.”
Many worry about the security of internet banking, or they worry about going into debt when they use automatic or contactless payments. “It’s creating that next level of anxiety and fear.”
Andrew says many of the hundreds of the most vulnerable and indebted people using budgeting services often decide to go ‘cash-only’ for a few years while they get themselves out of debt.
“Often with these extreme cases we take all their money off them, pay their bills, and then give them what’s left – in cash. They say they want cash, so they can’t spend more than they have.”
Cash is free
A Citizens Advice Bureau report into digital exclusion finds cost – to buy a device or to get data, or both – is a big factor for some people when it comes to internet banking and online payments.
“Not everyone has a credit or debit card or has access to or confidence in using online banking. As alternative options start to disappear, some people are left struggling to participate and to complete processes that increasingly require payment to be made.”
Payment by Prezzy
With the closure of many shopfronts for government and other services, the option of fronting up to make a payment over the counter by cash or Eftpos is vanishing, Citizens Advice Bureau says. At the same time, all the major banks will stop accepting cheques this year.
“In some cases, the only available option is to purchase a Prezzy card (at an additional cost of $5.95) and load money on it so that they can pay online.”
– Citizens Advice Bureau
“When it comes to important transactions such as paying for bills, meeting tax obligations, fulfilling repayment commitments and paying application fees for visas, passports and citizenship; the focus on paying online can present an additional challenge in navigating the digital world.
“In some cases, the only available option is to purchase a Prezzy card (at an additional cost of $5.95) and load money on it so that they can pay online.
“While electronic payments are promoted as simpler, easier and safer; for some people they are yet another barrier.”
The ‘unbanked’
US research shows 6.5 percent of Americans, or 14 million adults, didn’t have a bank account in 2018. Sometimes it’s because they are illegal immigrants, maybe they don’t trust the banking system, or they might be homeless and not have the prerequisites to qualify – an address, for example, or some form of ID.
The percentage is likely lower in New Zealand, where there are fewer illegal immigrants. But there could still be tens of thousands of “unbanked” Kiwis. People who are forced to use cash to survive.
FinCap certainly comes across people who don’t have or want a bank account. Some struggle to get an account, for example, after a ‘no asset’ insolvency process.
“It’s a concern for us because it creates a barrier to them receiving any payments they may need, such as WINZ.”
Other people choose to be ‘off the grid’ for more ideological reasons. Brett Scott, author of The Heretic’s Guide to Global Finance, told The Guardian newspaper “the war on cash is a bigger issue than people realise”.
The private banking sector, and payment companies such as Visa and Mastercard, want us to stop using cash, Scott says.
“Every time they close branches or cut ATMs, they’re preventing you from exiting their system. Our ability to exit the banking sector is the single greatest thing that holds banks in check.”
Andrew says FinCap is working with the Reserve Bank as it tries to understand the impact of rural bank branch closures and the move to a cashless society.
“We are painting them a picture.”
Reserve Bank looking at options
Reserve Bank assistant governor Christian Hawkesby says a review is underway in 2021.
“One option to ensure that cash is available for the long-term might be concentrating cash services in a single provider. For example, the end-to-end cash infrastructure could be provided by an industry monopoly model.
“Alternatively, a private-public-partnership as seen in some parts of the water, transport and electricity industries could be used. Such a model would recognise the public case for cash.”
Hawkesby is looking for banks to take the problem seriously.
“Cash provides important benefits to many people, including legal tender money, social and financial inclusion, peer-to-peer payments, backup payments, privacy and autonomy.
“We encourage every banking sector participant to consider their role supporting their customers and their access to cash.”
The Reserve Bank was committed to ensuring: “New Zealand has a cash system where people can easily withdraw, deposit and pay with cash when they need to, and the cash system remains efficient and resilient to sudden shocks and a declining transactional use of cash.”
Cash and Covid-19
One of the reasons the Reserve Bank is keen to protect cash transactions is because when Covid-19 hit, people turned to cash.
“During the weeks leading up to the March 25 pandemic lockdown, New Zealanders demanded an unprecedented amount of cash, with $800m of bank notes issued in March alone (compared to $150m in March 2019). These bank notes have not yet returned to the banking system, meaning they are likely still being held by the public.” Hawkesby says.
The amount of cash in circulation grew 15 percent year-on-year during the second quarter of 2020.
It was the same during the Christchurch earthquakes. When the electricity went out, card machines didn’t work. People were forced to pay for things in cash.
Demand up, access down
But while people want more cash, getting hold of it is getting harder and harder, Hawkesby says. Banks have used Covid to fast-track planned reductions in cash services.
“We are sympathetic to the complaints from those who are struggling to adjust to changes to cash services from their bank.”
– Christian Hawkesby
“Since September 2019, the largest four commercial banks [ANZ, BNZ, ASB and Westpac] have collectively reduced their number of bank branches by 6 percent and reduced the operating days or hours of 271 remaining branches,” Hawkesby says.
“We are sympathetic to the complaints from those who are struggling to adjust to changes to cash services from their bank.”
When Newsroom contacted the banks about the move away from cash, all of them said they did accept cash in branches – although a BNZ spokesperson confirmed the bank is trying to get customers to do it themselves.
“We do accept coins over the counter, but encourage the use of our smart ATMs as a 24/7, fast and efficient way to deposit cash.
“When all BNZ branches re-opened under COVID-19 Alert Level 2, we made some changes to the way they operate. If a self-service option is available, we will be directing customers to use that where they can, which frees up our staff to help our customers with other more complex things, like financial health checks.
“It also means we can help more people, which means less waiting time in branch.”
Kiwibank spokeswoman Kara Tait said the bank was “committed to ensuring our customers have access to cash throughout our network”. However she says in some areas, there’s almost no demand for cash services.
“Currently we have three branches that do not include facilities to accept or hand out coins, as the demand for that service is negligible in these locations and there are other branches in the vicinity that do offer this service. An example is our Newmarket branch where we’ve only had a handful of requests for coin deposits over the past 12 months.”
Profit-focused Australian-owned banks
A former senior New Zealand bank executive was cynical.
“New Zealand banks are focused on the removal of cheques, cash and closing branches, especially in rural locations, to reduce operating costs. Branch closures are important to the banks as they are obsessed with reducing the number of people they employ.
“The banks try to disguise these cost cutting actions as being required to invest in the future and further develop digital banking, but the reality is that they are letting down vulnerable customer groups who often rely on their local branch staff to help them manage their finances.”
New Zealand banks are some of the most profitable in the world, with the big four banks making more than $5.5 billion for their Australian shareholders in the 2018-2019 year.
Profitability was hit by the Covid lockdowns and that is a factor accelerating the move to digital banking.
“Banking executives believe investors/shareholders will look favourably at them for achieving these headcount reductions. This can become an obsession for the CEO and executive teams,” the source says.
Legally, banks and retailers don’t have to accept cash, unless it’s for payment of a debt, the Reserve Bank rules say. In theory, you could pay your mortgage in $10 notes. Even then, the Reserve Bank says courts tend to expect big sums to be paid electronically, not in cash.
Cash stewardship
2021 will see a new Reserve Bank department established called ‘Money and cash – Tari moni whai take’ (‘the department bringing money that’s fit for purpose’). The bank has also taken on what it is calling an “active stewardship role in the provision and supply of cash.”
“It seems to me the banks are unilaterally declaring we shouldn’t bother with cash any more. And that’s hard for people.”
– Jenny Clark
That’s important, says Jenny Clark in Paekākāriki. Losing the option of using cash just makes a whole lot of previously simple tasks more difficult.
“If we don’t have cash, how do we give our grandchildren birthday money or give buskers a coin? Certainly we don’t do coin trails at school anymore.
She sends Newsroom a link to this photo from a Hutt Central School coin fundraiser in 1941.
Tip jars in restaurants and street charity collections will also become a thing of the past, Clark says.
“It seems to me the banks are unilaterally declaring we shouldn’t bother with cash any more. And that’s hard for people. A credit card and online banking are not the answer to everything. It just makes the banks’ job easier.”
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UPDATE: The Reserve Bank has pushed forward over the past few months examining the role cash plays in society. Its newly-minted Money and Cash Department – Tari Moni Whai Take has put out three “Future of Money” discussion papers over the past three months, with the final one: Future of Money – Cash System Redesign published at the end of November.
The paper looks at the importance of cash payments in society, including for social inclusion, and poses the question of who should pay the cost of keeping cash as an option. Banks are pushing customers towards the cheaper option (for banks) – digital banking. But is that in the best interest of New Zealand and New Zealanders?
“Some of the policies raised for further consideration suggest a rebalancing of costs towards banks,” the paper says. “In some ways, the question of what role banks play in the cash system – historically, now, and in the future – goes to the very essence of what it means to be a bank.
“Banks may prefer a digital-dominant (or digital-only) relationship with customers, but that has consequences for cash availability, which in turn affects the value anchor, which, in turn, we argue underpins private money. This is as much a social licence argument about banks’ relationships with their customers as it is an economic argument.
“Similarly, we pose the idea that the government should bear more of the costs of the cash system – by way of mandating merchant cash acceptance (including requiring government agencies to accept cash when they interact with the public) and potentially by way of involvement in some form of utility entity.”
It’s going to be interesting. Feedback on the paper closes on March 7 2022.
