A $1 billion piece of infrastructure to be switched on in early 2018 is likely to accelerate the decline of cash and further cut into already tumbling use of cheques, payments company BPay Group predicts.
In a change that Reserve Bank governor Philip Lowe has described as potentially "transformational," the new payments platform is due to be switched on soon after Australia Day in 2018.
The project, which is going through its final stages of testing over summer, will offer consumers the ability to make real-time payments to customers of other banks. The system will also allow people to link bank accounts to phone numbers or email addresses, removing the need to enter a BSB or account number when transferring money.
BPay will run a service known as "Osko" that will be what customers see when they make payments on the NPP - banks are expected to roll out Osko services when the NPP goes live. BPay Group chief executive John Banfield said the new service would have a significant impact on the use of cash for small payments.
"I think Osko will change the way in which Australians will pay. It will go a long way to eliminating small cash payments, eliminating cheques, and also go a long way to taking away some of the pain around paying anyone," Mr Banfield told BusinessDay.
He pointed to examples where people frequently still use cash - such as reimbursing a friend, or paying a tradesperson or a babysitter - where digital payments may become more appealing once consumers did not need to enter BSBs or account numbers.
The RBA's Dr Lowe also talked up the potential of the NPP - part of which it built - in a speech in December.
"Payments will be able to be made by just knowing somebody's email address or mobile phone number and plenty of information will be able to be sent with the payment," Dr Lowe said.
"This system has the potential to be transformational and will allow many transactions that today are conducted with banknotes to be conducted electronically."
The same speech from Dr Lowe said 37 per cent of household transactions were made in cash in 2016, the latest years covered by its data, down from 70 per cent in 207. ATM withdrawals have also fallen 25 per cent since 2008, a trend Dr Lowe said was likely to continue.
Cheque use has already fallen much more dramatically, plunging by 73 per cent in the last ten years, according to data from the Australian Payments Network.
Mr Banfield said the NPP would further undermine the case for cheques, because it would result in money being settled in real-time. For example, cheques were still often used when people were buying a car, he said, but the NPP would make digital payments a more attractive option for a purchase such as this.
"Because of the real-time notification and the real-time settlement, the benefits will clearly outweigh someone wanting to accept a cheque, let alone write a cheque," Mr Banfield said.
Much of the switch away from cash has been driven by use of debit and credit cards, and banks are betting that consumers will increasingly embrace paying for things using mobile apps.
Even so, RBA figures still show that the value of all banknotes on issue as a share of the economy is at a 50-year high. The central bank says this shows much of the cash is being used for "purposes other than for making day-to-day payments."