Changes in Customer Behavior and Perception due to Cashless Banking
Discuss about the Impact of Cashless Banking on Organizational Change of Banking Industry of Australia.
With the introduction of globalization, organizations have undergone constant changes, and it has become an accepted phenomenon in all industries (Humphrey, Kim & Vale 2011, p. 222). Technological innovations, the creation of new market conditions, environmental, and political factors have led organizations to change. Banking industry is not an exception and it has become a common phenomenon (Clary & Wandersee 2013, p. 68). Organizations adjust their operations and adopt the innovations to be in line with market changes. Competition is also another factor that has led to change initiative as other organizations set standards and to remain relevant and competitive in the market, the organization has to adopt the new market conditions created. The shift of cash to a cashless society in Australia is characterized by bank offices becoming completely cashless and shifting the concentration to the electronic money (Australian Bureau of Statistics 2013). The technological changes and innovations leading to usage of software within the society have also lead to the changes in the transactions and payment system in Australia. The image below shows the world non-cash payment transactions.
The Reserve Bank of Australia the country’s top financial institution released data showing proof that the ATM cash withdrawals plunged down to its lowest in the 15 years. The share of cash in consumer payments went down to 39% from 70% over nine year period (RBA, 2012).
The financial sector globally has undergone many changes due to innovations and the increasing demand for services by customers (Segendorf & Wretman 2015, p. 51). Also, the need to facilitate easy in production and trade of services and products has led to the organization changes in the banking industries. The ease of convenience and accessibilities of services led to constant technological innovations to meet the needs of customers. For example, a study done by the MasterCard showed that Australians regard your business negatively if your only method of payment is cash.
People’s engagement in transactions has led to these changes. Banks have traditionally been viewed as stores for cash storages since the inventions of money. However, globalization, new methods of handling money and new information systems have led to the increase in development of financial systems. It led to the change in the bank-customer relationship and the services customers expect from the bank. The banks are no longer viewed as only a cash store, but also a service advisory system.
Benefits and Reductions in Cost of Operations
The technological and communication advancements have contributed highly to the changes in the behavioral changes of the customers and the banks (Bagnall, Chong & Smith 2011, p.9). Innovations of cashless products such as banking over the internet, use of e-cards and the ease of accessibility during transactions changed the banking organizations product and services to offer. Traditionally, the banking services were accessed at the working hours, but the changes have now led to 24-hour access to services. Services such as transfer of money, making savings, purchasing goods have become cashless, and one can perform any transaction without going to the bank. The increased knowledge in managing internet banking, automated teller machines has led to customers’ independence and teller bank services not required. The bank card, internet banking, and the automated teller machines have led to cashless services. These have led to different impacts on the organization change of banking industries.
Changes in customer behavior and perceptions towards cash services at the banks led to the innovation of cashless banking. Cashless bank services refer to banks relying on the use of electronic means rather than cash when conducting monetary transactions. The introduction and widespread use of electronic cards, mobiles and internet banking in early 2000 led to the cashless banking concept. The cards are loaded with credits from the banks for customers to transact, and when the money is used up, they are recharged. The cashless system is used largely over the world in the finance system. Most transactions in Australia have changed to the cashless system, and only 7% are using cash. It has led to the debate on whether Australia will follow Sweden and adopt the cashless banking system entirely (Segendorf & Wretman 2015, p. 51). The trend in lower usage of cash in transactions shows that the future is cashless banking system.
Cashless banking system led to increased benefits and reduction in the cost of the operations. The role of the Reserve Bank is to focus on the implications of monetary policies in the economy of Australia. It is debatable that the cashless society would lead to Reserve Bank losing their independence and making the monetary policies less efficient. Cashless society refers to no distribution or circulation of coins and notes by the cent Reserve Bank. Private institutions issue all the money and the Reserve Bank has no monopoly on the issue of money. There will be no physical medium of exchange of money. The cashless banking system will reduce the chances of banks run in the presence of negative interest rates. Customers would not withdraw bank deposits in case of an expected bank failure. It will only encourage customers to withdraw to avoid interest fees that may be caused by negative interest rates. In the negative interest rates, the cashless society may strengthen the Reserve Bank power to conduct the monetary policies (Bagnall, Chong & Smith 2011, p.9).
Desire to Adopt Electronic Payment Methods
If the negative interest rates are carried over to the private households, the banks will benefit and the possibilities of experiencing bank run are lower in the cashless banking society. A good percentage is not using cash anymore, and the highly developed electronic payment system is less likely to experience bank run. People will have to visit the banks to deposit their cash as the cash transactions cannot take place without visiting the banking halls. People cannot pay bills over the internet or use of cards without loading the cards. The people will stop visiting banks to withdraw money and then deposit it again (Humphrey, Kim & Vale 2011, p. 222).
Another benefit of cashless banking is the different cost structures for the card payments. The card payments compared to cash are cheaper. The use of debit cards is a cheaper form of payments compared to cash or use of credit cards. The use of debit cards in transactions has increased the efficiency of the payment system in the cashless banking system (Humphrey, Kim & Vale 2011, p. 218). Transaction handling, customer service, information technology and communication, authorization of payment, and control of checks are some of the cost of debit cards. While for cash, costs include the deposits, personnel costs such as cash counting and handling every day, withdrawals, printing costs, transportation, time for transactions and servicing fee and other fees by the banks (Segendorf & Wretman 2015, p. 49). Other costs such as work time, administration information, safety costs, insurances in handling cash and risk of robbery are also involved in cash transactions, unlike cashless transactions. The banks bear major costs for cash transactions and suffer losses. The cashless transactions assist banks in minimizing losses and focussing more on its customers. Reducing cash payments and using the cashless system make the purchasing and transactions more efficient. The use of debit cards in most transactions benefits the society as they would use the credit cards less which costs are also on the higher side (Sorman 2011, p.190).
The desire to adopt the use of electronic payment methods over cash has increased among consumers in many parts of the world. However, the demand for cash for non-transactions purposes and as a way of wealth storage is very stable and adopted from one organization to another. The use of cashless bank services for transactions has increased over the decades. The economy uses both the cash and cashless system to make payments for different services and products (OECD Economic Surveys Australia’, 2014, p.62). On the other hand, the use of cash is still preferred as people believe it is a secure means of payment and storage of wealth purposes. The trend in using cash for the transactions has changed to the cashless system with the continuous use of mobile banking, internet transfers and other electronic methods of transfers. Until the full transition to the cashless transaction system, the Reserve Bank maintains public confidence in providing high-quality notes for cash transactions and free from counterfeiting. The graph below shows the trends of cash payment from 2007 to the year 2016 in Australia.
Other benefits such as increased tax revenue, the creation of new jobs due to innovations in developing payment companies and efficiency for businesses would also rise due to the adoption of cashless banking systems. Payment innovations such as registering points, direct customer communications, mapping the consumer behavior would result from cashless banking will lead to increase in growth of businesses and creation of more jobs. Also, the criminal activities such as cash robbery would not occur (Richards 2016, p. 24)
The Reserve Bank’s main objective is to keep inflation stable and low by controlling the money supply and adjusting the short run interest on loans between banks. The cashless banking system reduces the money supply leading to the debate on the whether the full cashless society would lead to monetary policy efficiency. Reserve Bank has to focus on real interest rate rule manipulating the short-run interest rate on loans between banks meaning the money supply in the banking system will not affect the cashless system will not affect monetary policy (Liu, Margaritis & Tourani-Rad 2010, p.507). According to Stix et al. (2014, p. 2014), the process of adjusting the short-term loan interest rate will enable the transition to a cashless society not to interfere with the monetary policy. Other tools can also be used by the Reserve Bank to control inflations in cashless society; these include reserving the cash requirements, rationing open market operations and moral suasion (Odior et al. 2012, p. 13). The role of the Reserve Bank will have to be revised in a cashless economy and focus more on regulatory and supervision of the institutions issuing money. The Central Bank will have to increase its regulation role, tax overview and integrity protection (Cowling & Howlett 2012, p.72).
According to a study done by Odior (2012, p 14), the development of cashless society would see monetary policies more efficient with less cash in circulation. The reduction in cash transactions will lead to the payment system more efficient and reduction in robbery cases and cost of transactions. Australia focusing more on market operations and reserve requirements will help reduce inflation. The costs of not printing currency will balance some of the losses that may occur. The cashless banking system will increase the rate of circulation of currency in the long run which stimulates trade and commercial activities (Claessens, Dem & Cock 2012, p. 258). The role of Reserve Bank would be revised into taking a supervisory role in controlling the cashless money issued by private institutions. They will have to control inflation and to impose legal reserve requirement to remain independent.
The Reserve Bank will most likely revise its role in the cashless society in the cases of the transaction in the cashless society. They will have to take a regulatory role. The ability of the Reserve Bank to target the repo rates will be unaffected hence not interfering with the monetary policy which will remain effective in the cashless society. Measures such as open market operations, reserve requirements and liquidity ratios will be used to control inflations.
The cashless mode of transactions characterized by the use of credit card, ATM card, telephonic and electronic transfer of funds, internet and mobile banking has seen the increase in profitability for the organizations and banks at large (Gruen, 2015, p. 206).. The banks who introduced the ATM early have a high market share as people joined these banks due to the conveniences in accesses the services provided by the banks. It gave the banks competitive advantages due to low-cost reduction and increased profits. The cashless banking has also lead to increased efficiency in operations by increasing revenue and cost reduction (Bagnall & Flood 2011, p.57) A study done by the MasterCard showed that Australians regard your business negatively if your only method of payment is cash (Balnaves, 2012, p. 138).
The introduction of the e-banking and reduction in the traditional measure such as market share and bank size let to increased profitability. The use of cashless banking system significantly increases the profitability of the banking industries (Al-Smadi & Al-Wabel 2011, p. 6). The internet-based transactions have few costs and increase the profits. The cashless banking system increases the flow of deposits as people deposit the cash they have to access the money through card or internet or mobile transfers. The traditional way where most operations took place through cash exchange saw many people store their cash and use them during transactions. The increase in the flow of money also increases profitability to the banks (Valadkhani, Anwar & Arjomandi 2014, p. 56) The use of phone banking and ATMs has improved the efficiency of the banks too. It has also enabled customers to access information on their accounts and the products and services the banks are offering to increase the marketing rates for banks at low costs. Most of the expenses involved in cashless transactions reduce over the time and the banks only make profits (Meredith, Kenney & Hatzvi 2014, p. 46).
The use of cashless banking system has also led to the growth of businesses. There is a flow of money and easy access for purchasing services as one can transact over the phone or internet and get the product without making withdrawals at the banks (Schwartz, Fabo, Bailey & Carter 2012 p. 92). Businesses are also able to gather information on the habits of purchase of their customers. Leading to increased support to customers and understanding their consumer behavior. Most consumers/customers in Australia already prefer the use of the cashless system and a good percentage is already using the cashless financial system to make purchases and different transactions.
The investment by banks in the cashless banking services to their conveniences at low possible costs has ensured profitability for the banking industries. The cashless innovations aim at providing the banking services to customers without cash (Fox, Liu & Martz 2016, p. 8). The increase in this services leads to increase profitability for the banks as it reduces the use of resources and time spent in handling cash. Hence profitability increases for the banking industry in the introduction of the cashless banking system. The reduction in operation cost leads to the increase in the profit margins for the banks’ (Commonwealth Bank of Australia SWOT Analysis’, 2017, p.6).
The customers of the bank have become more independent in managing their bank errands as they can access all the information they need online and do not require service advisory from the banks. It has led to banks focusing more on providing good customer relations service to the customers to retain them. The cashless services attract more customers and increased transactions due to accessibility (Johnson, Ashta & Assadi 2010, p.27). The banks now focus more on issues arising due to use of the cashless services and they have established centers to support the customers. It has also controlled the financial crimes by reducing the rates of robbery (Emery, West &Massey 2010, p. 159). The banks can also asses the habits of their customers and improve on ways of serving them better. By providing excellent customer services, the banks can win the customer’s loyalty. The interaction of customers and the banks is of importance to ensure loyalty as customers have many options and switching banks can be done over the internet. Gaining the internet confidence of customers is more critical to the banks during the cashless banking (Fish & Whymark 2015, p. 8).
In conclusion, the transition to the cashless banking system in Australia has both negative and positive impact on the banking industry. It has the possibility of affecting the Reserve Bank’s ability to conduct monetary policy due to the quantity of supply of money. There is a relationship between the rate of money supplies and economic output, and the lack of cash supply would lead to inflations. The Reserve Bank will have to come up with different roles such as supervising and regulating the private institutions that provide the cashless services to the people.
There are also benefits to the cashless banking systems; the banks reduce the cost of services offered leading to efficiency in the payment system. It generates high economic activity and output. The cashless system also reduces the cost of printing and transportation of cash. There will also be a decline robbery in places such as stores, banks and people will no longer be carrying cash. However, the cybercrime such as internet fraud will increase. The banks will have to protect their systems to avoid hacking and protect their products. The concerns over privacy in the cashless society are critical. All the transactions over the electronics are recorded; the banks can theoretically track the information and collect data. The data can be used for malicious services. Policies and restrictions should be put in place by the government to protect the data and information of the customers.
In summary, there is a decline in the role of cash-based transactions and the trend tends to continue with the adoption of mobile payment transactions and the alternative electronic forms of transactions. For now, the cash-based form of the system will remain a significant part of the Australian payment system. The Reserve Bank is in place to consider the different ways of meeting the demand of the economy and the technological developments that arise. The cashless and cash system of transactions are available for those who wish to use either one of them
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