This paper reports the results of the study on payment patterns in Australia undertaken by the

Reserve Bank of Australia as part of its 2007/08 review of the payments system reforms.

The study aims to provide a comprehensive picture of how individuals in Australia make

payments for goods and services. While, historically, reasonably good data have been available

on the aggregate use of electronic and cheque payments, there have been comparatively little

disaggregated data available and little information about the use of cash for payments. This

study fills these gaps.

Understanding how individuals pay for goods and services is a key input into the Reserve Bank’s

review. It is important for making assessments about the potential for substitution

between various payment methods and, combined with data on the cost of running individual

payment systems, can help provide an indication of the aggregate costs of the payments system.

This study should also assist those in the payments industry to better understand how, and

where, various payment instruments are used.

The study draws on three main sources. The first is a survey commissioned by the Reserve

Bank in which individuals were asked to record all their day-to-day payments over a two week

period. The second is detailed payments data provided by financial institutions and large

merchants. And the third is a survey of small merchants on the use of different methods of

payment by their customers.

The main conclusions of this study are as follows.

• Cash is by far the most widely used payment instrument in Australia, accounting for around

70 per cent of everyday transactions. On average, cash transactions tend to be for relatively

small amounts, so that cash’s share of the value of payments is considerably lower at around

38 per cent.

• Cards are the dominant payment method for transactions between $50 and $500. Both

debit and credit cards are used extensively for these mid-sized payments, although there is

a tendency for the share of spending on credit cards to increase as the payment value rises.

Above $500, credit card payments outnumber debit card payments by a ratio of 4 to 1.

• Cheques are infrequently used for point-of-sale payments, although they are still used

reasonably frequently for bill payments and for high-value transactions. The use of electronic

bill payment methods has increased signifi cantly over recent years. Since 2002, the number

of BPAY payments has doubled, while the number of direct debits has increased by almost

50 per cent.

8. Conclusion

Australian households make around 11 billion payments per year. Cash, which accounts for

around 8 billion of these payments, is the most widely used form of payment for individuals, and

is the dominant method of payment for small transactions. In some merchant categories, cash

is used for more than 80 per cent of all payments – again, typically where the average size of

payments is low. Evidence from Payment Costs in Australia reveals that cash typically provides

for shorter tender times than other instruments, especially for low-value transactions.23

Card payment methods are also widely used. Taken together, debit and credit cards are

the most frequently used form of payment for transactions between $50 and $500. At lower

payment values, EFTPOS is more frequently used than credit and charge cards. This pattern is

reversed, however, for high-value payments: credit cards account for more than 80 per cent of

card payments above $800. In the case of EFTPOS, daily transaction limits of around $1 000

are at least one infl uence on these patterns. Cards are used across a wide range of merchant

categories – in particular, EFTPOS is used frequently for supermarket and petrol spending,

where the availability of cash-out plays a role, while credit cards account for a substantial

proportion of transactions in sectors such as insurance, holiday and travel spending, and housing

and utilities payments.

While the use of cheques has been gradually declining, cheques remain an important part of

the retail payments system, with cheque payments via the mail still accounting for a substantial

share of the value of bills paid. Conversely, BPAY has been growing in importance as a payment

method, and is the most frequently used method for payment of bills. A substantial number of

bills are, however, still paid over the counter, rather than electronically.

Demographic factors, in particular the age of Australians, appear to have a signifi cant

infl uence on payment patterns. Generally, older individuals tend to use cash and cheques more

frequently than do younger people. Conversely, debit cards are more frequently used by people

aged between 18 and 40. The use of credit cards is highest for those aged between 30 and 50,

while BPAY is used more often by those under 50.

ATMs are the most used method of obtaining cash, accounting for more than 60 per cent

of the number and value of withdrawals. Cash-out at point of sale is also used frequently, but

generally for quite small values. Over-the-counter withdrawals tend to be used more frequently

by older people and, on average, are for larger amounts than withdrawals through ATMs.

Finally, the Reserve Bank thanks all the fi nancial institutions, businesses and individuals

who participated in this study. The Bank welcomes comments on the fi ndings presented in

this paper.