Cashless society a double-edged sword, risks must be considered

Ronald Mizen
April 30, 2018
AFR

Australia’s embrace of cashless payment technologies is a double-edged sword and consumer convenience needs to be weighed against the risk of cyber-attacks which have the potential to cripple the economy, according to security experts. 

Australians have made big moves away from cash over the past decade, with Reserve Bank of Australia’s 2016 consumer payments survey showing only 37 per cent of consumer payments are made in cash today compared to 69 per cent a decade ago.

At the Australian Financial Review’s Business and Wealth Summit last month, Westpac CEO Brian Hartzer said cash was disappearing “faster than any of us anticipated”, and predicted 95 per cent of Westpac transactions would be cashless within a decade.

But Australian Strategic Policy Institute (ASPI) analyst Simon Norton told The Australian Financial Review while the rapid adoption of cashless technology was convenient for consumers and good for combating money laundering and tax evasion, other risks need to be considered.

“I think from a national security point of view there are pros and cons – and particularly fighting crime and tax evasion is a positive – but we have to consider the risks of critical infrastructure and the banking system being hit and what would happen,” he said.

“The more cashless you are, the more disruption there is if that happens.”

Systemic risks

Mr Norton highlighted the chaos caused by a recent payment outage at the Commonwealth Bank which left some customers stranded at supermarket checkouts, unable to pay their rent, and unable to pay for transport to medical appointments.

“That was just a glitch and it went down for a little bit. So, you know, if there was a massive attack that would be a huge disruption,” he said.

Mr Norton’s comments come just over a week after US Department of Homeland Security secretary Kirstjen Nielsen issued a strong warning about the “systemic risk” posed by cyber-attacks on critical infrastructure.

“An attack on the financial sector, for instance, can quickly have an impact on the energy grid, which can affect water systems, which can affect healthcare and agriculture … and you can’t predict where it will stop because of our endless inter-connectivity and digital dependence,” she told the RSA conference in San Francisco.

“Whether it is common tools such as GPS or payment and settlement systems, our cyber risk assessments need to factor in shocks to the system that could have untold, cascading consequences.”

Westpac business boss David Lindberg has pointed to the success of Swish, the mobile payments platform owned by seven large banks in Sweden – where less than 1 per cent of transactions are now made in cash.

“I think we are closer to a cashless society than many people would imagine,” he said.

Not going anywhere

But even Sweden’s central bank governor Stefan Ingves has warned about the risks of digital privately owned payments systems, saying those who think there is nothing to fear “in a world where public means of payment have been replaced completely by private alternatives … are wrong”.

“In times of crisis, the general public has always sought refuge in risk-free assets, such as cash, that are guaranteed by the state,” he wrote earlier this year.

“The idea of commercial agents shouldering the responsibility to satisfy public demand for safe payments at all times is unlikely.”

But the RBA is less concerned and believes cash is not going anywhere anytime soon because Australians are already factoring in the risks of a less cash economy.

At the same time the demand for cashless payments has soared, so, too, has demand for cash as a store of wealth. The RBA believes while people have been happy to embrace cashless technology, they are hedging their bets with hard currency.

“We will supply whatever demand the community needs and it’s our role to make sure that we provide that supply and that we do so in a way that the community has confidence in using the banknotes,” RBA assistant governor Lindsay Boulton told the Financial Review.

“At the end of the day, it’s a demand-determined thing. The community will determine which instruments they want to use and the extent to which they want to use each one of them.”