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 fi rst 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

H O U S E H O L D P A Y M E N T P A T T E R N S I N A U S T R A L I A 1 3 9

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 influence 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 significant influence 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 financial institutions, businesses and individuals who participated in this study. The Bank welcomes comments on the findings presented in this paper.