The Armaguard saga shows we’re a long way from ditching cash entirely

But there’s no question the slow decline of cash picked up pace during COVID-19, and recent events at Armaguard have added some urgency to the situation.

Late last year, Armaguard revealed its future was at risk from the decline in cash usage. This was a big deal because Armaguard is a vital link in the chain for getting cash to ATMs, bank branches, supermarkets, other big retailers, and post offices. It is also a virtual monopolist, with 90 per cent of the cash transport market, after it was allowed to merge last year with its former main rival, Prosegur.

Big banks last year entered into talks with Armaguard, trying to arrange a rescue package for the company, but last week, Armaguard rejected the banks’ offer. Instead, it opted for a $10 million lifeline from its parent company Linfox, owned by billionaire Lindsay Fox. Banks estimate this will be enough to keep Armaguard operating for a few more months.

This week Linfox told to The Australian Financial Review it would seek to raise prices with banks, but it will need permission from competition watchdog to change a previous undertaking on pricing.

Negotiations will continue, and banks have also started contingency planning for the possibility that a deal can’t be done. But whatever happens to Armaguard, the episode has highlighted that as usage of cash declines, it is putting pressure on the nation’s infrastructure for distributing cash.

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The basic problem is that it’s costly to move and store all those notes, and to keep ATMs and bank branches stocked. The costs of trucks, depots and equipment are largely fixed, but there’s less revenue to be made from cash transit because we’re using so much less of it.

Cash was used in about 70 per cent of consumer payments in 2007, but only 13 per cent of payments in 2023, the ABA says. That number will only drop in years to come.

The trend towards digital payments is clear, so the challenges facing cash-handling businesses such as Armaguard are likely to remain.

Yet, at the same time, there are sizeable groups in the community who still use plenty of cash.

The Reserve Bank’s latest survey on consumer payments found 7 per cent of Australians were “high cash users” who use cash for 80 per cent or more of their in-person transactions. While this number halved between 2019 and 2022, the Reserve said people aged over 65 were far more likely to be high cash users than the young. Households with lower incomes also tend to be bigger cash users.

The central bank’s survey also found that for 4.5 per cent of the adult population, cash was essential: they’d experience “major inconvenience or genuine hardship” if they couldn’t access it. When asked why they saw access to cash as essential, these people were most likely to point to security or privacy concerns, followed by the fact some businesses only took cash, followed by budgeting reasons.

Others see cash as a store of value (while in other cases it can be a way to avoid tax, or for criminals to store wealth). The Reserve Bank said last year there was $101.3 billion in banknotes in circulation in the economy – a huge sum, even if it did decline.

There have also been reminders in recent years that electronic payments have their own risks: they are vulnerable to outages, such as in a natural disaster, or if a telco has a technology meltdown.

All up, it’s pretty clear we’re not ready to move to a fully cashless world, even though that’s where more and more payments are heading. But equally, the crunch on the current cash infrastructure is only going to intensify.

As a result, there will almost certainly need to be changes to the system we’ve got for distributing cash to those in the community who still need it.

Perhaps the banks could get together and form some sort of “utility” that shares the cost of distributing cash around the country, a model previously floated by the Reserve, or maybe some other approach will make more sense.

But however the negotiations over Armaguard unfold over the coming months, the system we’ve got now for distributing cash into the community is unlikely to be sustainable in the long term.