Adoption of Retail Non-Cash Payments in the Australian Economy - Case Study Example

CAPITAL MARKETS Name: Lecturer: Course name: Course code: Date: Introduction In every transaction taking place, there are two means of paying money. These are cash payments whereby the members exchange cash and non-cash payments whereby the members use other means of payment for example use of a checks. Australian payment system has been under changes for the past years, these changes challenged Australian government such that they opted for other payment systems[Omo08]. The government implemented reforms that improved the payment systems, however, the new systems are not treated as efficient enough to change the lives of the citizens (Mohini .S, Dianne. W. 2004). The payment systems used in Australia are; customer electronic clearing system for example cards used by customers to clear their payments. Australian cash distribution and exchange system for example the use of check’s to make payments of large amounts of money. Bulk electronic systems apply to the use of direct entry of cash and this takes place in banks. High value clearing system is the last and it involves transactions that are regarded to be of high value. The above categories of payment systems are described as non-cash payments. This accounts for most of the Australian means of payment in which the daily activities and transactions takes place through direct entry, checks and card based payments[Set05]. Australian economy has always relied on the non-cash payments because they are engaging in transactions that involve large amounts of money. The purpose of such payment systems is to enhance security in the country and therefore encouraging more entrepreneurs to venture into business. Most of these payments made also results from settling foreign exchange and transactions on securities markets. Adoption of retail non-cash payments in Australian economy Retail non-cash payments in Australia are subject to net settlement. Since November 2013 direct entry obligations have been settled on the same day instead of deferred as had previously occurred. In the past years the business payments have experienced a decline on the use of checks in transaction[Sco10]. The decline was observed between the years 2012/2013 whereby analysis was done on the number of business persons who used checks as a means of payment and the results concluded that there was a great decline such that in the past few years, checks were used by most people compared to the current year. In contrast to a decline in the use of checks as medium of exchanging money, there has been a rapid adoption on the use of electronic means of transactions in Australia. Most transactions taking place either cash withdrawal or cash deposits are made through electronic systems. Compared to the previous years, people had knowledge on checks payment only and a few used electronic means. Australian government and economic department has been experiencing a change in the means of payments whereby they have been force to adapt to the use of direct entry credits for almost all the aspects of money transactions. Examples include the use of direct entry on salary payments, and for payments on social security[Chr11]. On the other hand, consumers and entrepreneurs are also embracing the use of direct entry to pay their bills. Australian government has therefore used direct entry as an important means of payment. These electronic means of payments have therefore added value on non-cash retail payments and from the analysis, Australian citizens are all shifting towards the use of these systems of payment. How the retail non-cash payments occurs Payments through the card have been divided into proprietary cards and scheme cards. Proprietary cards are used in undertaking transactions that involve financial institutions[Gre061]. In this case a financial institution such as banks issue cards for example automatic teller machines (ATM cards),to enable a customer to perform a transaction without having to visit their specific banks. Another form of proprietary card is electronic funds transfer at the point of sale whereby the card is useful for businesses that involve purchaser and the supplier such that the payment is made directly through electronic means. Settlement occurs through linking a person’s account bilaterally such that the cards reflect the account of an individual[Ste07]. The timing has been specified for each transaction and the calculations to be submitted at the specified time in all the financial institutions. Scheme cards are for example; dinner cards, visa cards and master cards. They are used to settle payments in any place an individual visits. The settlement occurs as per the daily transactions in business premises (OECD. 2001).the graph below indicates the adoption of personal credit cards in transactions. Payments made by checks include the process of issuing it to the respective receiver and it is accomplished through the company of other papers that enhance the payment activities[Omo08]. Retail non-cash payments that occur in the form of a checks have to follow the instructions from accounting commission. The settlements of such payments occur under a guideline provided such that there are bilateral and multilateral net settlements positions. The timing is stipulated in all the respective places for checks deposits. BPAY is another payment system for electronic bill payments which is used by most banks in Australia and even globally. It is a system whereby an individual can pay their money or bills without having to visits places of payments to queue. It is operated mainly by commercial banks and the settlement occurs through sending all the transaction files to the main center, whereby calculations for every individual are done. The timings for submission of these reports on electronic bill payments have been stipulated[Set05]. Direct entry is the last form of retail non-cash payment that is under the process of change in Australia, this form of payment is done through electronic systems whereby the money is deposited or withdrawn directly. The settlements are done as per the reforms from old mechanisms of direct entry transactions to the new arrangements made in the financial institution. The graph below shows the use of debit cards in paying bills and we find that there is a great shift from old mechanism on the means of payments, such that most entrepreneurial activities are carried through the new systems of transactions Impacts associated with settlements and timing of retail non-cash payment systems The first impact involves settlements associated with credit. This occurs as a risk because of the changes in the timing of old mechanism to the new mechanism as well. The changes in the timing results to a reduction of credit risk which occurs frequently due to delay in transactions. Take for example a situation whereby an individual has delayed in paying back the credit on time, this will result to bulk of credits and therefore will delay the next individuals who would like to borrow credit as a result of lack of money[Moh04]. This situation has resulted to collapse of many financial institutions. The introduction of retail non-cash payment system has reduced such incidence and has enabled credit transactions to take place without delays. The settlement and the changes in timings has mitigated the incidences of credit risks because it allows for settlement of obligations several times in a day and therefore reducing the chances of lack of credit (Schuh, S. 2010). Another impact on settlement and timing changes concerns the consequence of liquidity risk. This risk occurs due to the fact that financial institutions will be unable to predict their liquidity ratios required each day because of the new arrangements on non-cash payment systems[Omo08]. When this occurs, the institution will not be able to make their day to day decisions and therefore results to a challenge on managing the liquidity of a particular institution. Failure to monitor the liquidity level in an institution will result to a difficulty in managing cash reserves. This is a great impact that results from the changes in the systems of payments in Australia. The last impact on changes in payments systems is on operational challenges that will be encountered in financial institutions due to settlements and timings. It is obvious that in many institutions organizations, when there are changes in any aspect, it will affect the operations of that particular aspect under change[Chr11]. These financial institutions will have to organize for effective changes and therefore avoid late settlements in transactions. When it comes to small institutions that deal with finances, it the changes in payment systems has raised their costs of management and investments. An operational risk is one of the major negative impacts that results from the settlements and timings of non-cash payment systems. The graph below compares the use of cash and other means of payments for Australian economy. The graph below shows a great decline on the use of cash. Conclusion The changes in the systems of payment in Australia have impacted on the ways of performing the day to day activities and especially to the financial institutions. This implies that these changes will be gradually adapted by all the citizens. From the analysis on the retail non-cash payment systems we find that the impacts are both positive and negative. It is upon the Australian government to fully ensure that these changes are implemented because the positive impacts out way the negative impacts and therefore these changes are appropriate. Since Australia is a developed country, therefore there are many transactions taking place which requires a faster means of payment and therefore electronic means is the most appropriate. Therefore the settlements and the timings in all the transaction places should improve the payments and this will boost the economy of Australia as a result of embracing technology. Adopting these changes will change the lives of entrepreneurs and will motivate more innovative ideas for economic development. Written reflection The use of non-cash payment system is a great step in controlling and managing the finance in a country. According to Australian government, these changes will help in enhancing economic development. I agree on the fact that old mechanism means of payment was a drawback to most businesses in Australia because at some certain point, they used to experience some risks such as credit risk. The introduction of new mechanisms of payments has subjected the country towards embracing technology and changing their systems of transactions. With the growing population of Australian business, there is the need to change the systems to enable faster and convenient transaction systems which will save time and hence contributes towards economic development. Take a look at payment clearing for example, you find that in most financial institutions the payment systems for clearing involves more than one bank that require payments to be cleared between these financial institutions. For example when it comes to the use of a checks, the details that are brought from one financial institution and accomplished in another institution will be returned to the first financial institution so that it can give a way forward for the customer and this includes verification of the customer’s financial details. When the uses of electronic payments systems were introduced, it was a stepping stone for most financial institutions although these changes have impacted on the way of operations in these institutions. From my own opinion, the payment settlement and the timings that have been introduced in Australia are the appropriate steps towards achieving success in terms of financial developments. These systems will improve the means of transactions and therefore make Australia more productive when it comes to success of businesses. Having a business in Australia in the next year will be a successful venture because their means of settling transactions are advanced and therefore will enable one to perform transactions faster. I believe that the Australian government is experiencing a great move towards achieving economic stability. It is obvious that the economy of a country is dependent on the daily transactions taking place and the more transactions indicate a positive change. The negative impacts that are associated with the settlements and the timings are few and therefore I believe that the financial institutions in the Australian industry will adapt to these changes gradually. These changes are important and I suggest that all other countries should adopt these technological changes that foster success in their entrepreneurship advancements. The electronic means of payments make life easier in the country and it has resulted to saving time especially time taken to queue and wait for the transaction to take place. Analyzing these systems of payments has enabled me to gain knowledge on the different types of payments systems; I also had an opportunity to learn on the timings and settlements of transactions for each payment system which also enables me to have an experience of using these systems. Therefore it is important to have knowledge on these payments systems in order to understand how transactions take place in Australia. References Omo08: , (Johnson, 2008), Set05: , (Setsuya, 2005), Sco10: , (Schuh, 2010), Chr11: , (Christopher Chapman, 2011), Gre061: , (Greenwald, 2006), Ste07: , (Stefan W. Schmitz, 2007), Moh04: , (Mohini Singh, 2004), Read More