Impact of Cashless Banking on Profitability and Market Share in Australia

IMPACT OF CASHLESS BANKING ON PROFITABILITY AND MARKET SHARE: A
CASE STUDY OF BANKING INDUSTRY OF AUSTRALIA

CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the Study
The Banking system is the most common and known financial service provider all over the
world. Combining banking and information technology has revolutionized the world over. The
increased and rapid use of the internet and creation of information and technology has
radicalized changes that have been observed in the banking practices from the traditional
physical banking to cashless banking. Because of this it is an important need of bank to have
latest technology and highly developed services which increase trading, exports and improvise
industry as a gift of globalization.
Cashless banking has been on the rise in the recent years especially with deregulation and rapid
technological advances in information flows, communications infrastructure and financial
markets. Banks are now aiming to decongest banking halls so as to reach out to a large market
share and are heavily investing in cashless products eventually leading to increased revenue
streams. Additionally, with banks needing to increase their revenue and utilizing customer
unused deposits, there has been an increased financial trading on Bonds and foreign exchange
the preceding being a risk free investment and has an assured return is becoming quite common
in Banks due to increasing competition in the local banking sector.
1.1.1 Cashless Transactions
According to Tiwari et al., (2006), Cashless Transactions involve payment for goods and
services by use of credit cards, debit cards, mobile devices and electronic funds transfer instead
of use of hard cash or checks. These cashless transactions are known to attract transaction fees;
debit and credit card application charges and electronic transfers also attract charges depending
on whether it’s a local or foreign transfer. The wide-ranging economic developments of the
previous decade such as the integration of world economies have made a significant impact
towards increasing the mobility of the working populace and their families. At the same time,
technological developments especially in the field of telecommunication have made it possible to
offer innovative, location sensitive services on ubiquitous basis to customers on the move.
In Australia, 37% of consumers made their payments in cash, compared with 47% in in 2013 and
69% in 2007, a once-every-three-years survey conducted at the end of last year finds.
Meanwhile, credit and debit cards combined were the most frequently used means of payment in
the 2016 survey, the RBA reveals.
1.2 Statement of the problem
Adoption of cards over cash is propelling the Australia’s financial technology(fintech)
revolution. According to findings by Reserve Bank of Australia (RBA, 2017), cashless
transactions have overtaken the more traditional means for paying for goods and services.
Continuous technological advancements have greatly increased product base in banks leading to
new revenue streams such as mobile banking, telephone banking, automated teller machine
withdrawals, electronic point of sale transaction, card usage, online banking and cashless

transactions through bank agents and merchants. The basic purpose of this study is to establish
the impact of cashless banking services on profitability of the banking sector in Australia.
Majority of research done on this subject has focused on effects of mobile banking on financial
performance of commercial banks. None of the studies reviewed has specialized on the effect of
cashless banking on profitability in the banking industry. Therefore, there remain considerable
debate surrounding the effect of cashless banking and profitability in the banking industry in
Australia as there is no major study that has been done. The research will seek to answer these
questions: what is the effect of cashless banking on profitability and market share of the banking
industry in the banking sector in Australia?
1.3 Research Objectives
The study sought to establish the impact of cashless banking on banks profitability a case study
of banks in Australia. The broader objectives were:
i) To establish the effects of cashless banking on profitability in banking industry
ii) To establish the effect of cashless banking on the market share in banking industry
iii) To establish the relationship between the growth of commercial banks and the
cashless policy
iv) To establish the advantages of implementing Cashless banking in the banking sector
in Australia
1.4 Research Questions
This thesis will present an empirical investigation to study the effects of cashless banking on
profitability and market share in Australian banking industry. The proposed study consists of two
main research questions as follows
i) What is the effect of cashless banking on profitability in banking industry?
ii) What is the effect of cashless banking on the market share in banking industry?
iii) What is the relationship between the growth of commercial banks and the cashless
policy?
iv) What are the advantages of Cashless banking to the banking sector in Australia?

CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
This chapter introduces the literature review adopted by the researcher and it captures the
theoretical review and empirical review. Literature review is important to every research study. It
gives an overview of what kinds of research have been conducted and what are the gaps in
literature. Therefore, various research studies on Effect of Cashless Banking on profitability and
market share which were conducted in Australia and abroad have been reviewed.
2.2 Review of Literature
The evolution of conventional money has been well documented in economics literatures.
However, recent informational and communication technology developments have influenced
the role of money in economic activities. As a result, we can now talk of electronic money and
hence cashless banking. Empirical studies have attempted an estimate costs of payment
instruments as it was done by Humphrey and Berger, in 1990, e-payment instrument user
patterns by Humphrey et al 1996 and Carrow and Staten, 2000, the cashless and monetary
economy (Gali and Gambetti, 2009; Kriwoluzky and Stoltenbery, 2010), and the role of Central
Bank in a cashless economy (Claudia and DeGrauwe, 2001; Marco and Bandiera, 2004).
With the arrival of electronic banking, not only has traditional banking reduced drastically, but
also, the manual processes of recording transactions by hand has reduced. Banking has become
efficient that customers can get their services quickly and reliably. Local and international
transactions have become faster and require little time as compared to before (Sana et al, 2011).
Electronic banking according to business dictionary is the use of computers to carry out banking
transactions, such as withdrawals through cash dispensers or transfer of funds at Point of Sales
(POS). In other words, it is banking transactions conducted through computerized system, as
electronic fund transfers by Automated Teller Machine, intended to speed operation and reduce
cost. Electronic banking and cashless banking are closely related. Cashless banking is aimed at
reducing, but not completely eliminating, the amount of physical cash circulating in the economy
while at the same time encouraging more electronic based transactions. Basically, it is a
combination of electronic banking and cash-based banking (Odior and Banuso, 2012)
According to Ejiofor and Rosak (2013), it is the system with the ability to store money in an
electronic wallet on a card which facilitates purchase of products at vending machines or at any
point of sales terminals. Furthermore, Akhalumeh and Ohiokha (2012) see cashless banking as a
system where transactions are not done while exchanging actual cash. They are It is considered a
mobile payment system that allows the customers to make payment through cellphones with or
without internet connectivity. The system has increased ease of doing business while at the same
time creating more service options for the customers and reducing the cost of cash related
crimes. The system also provides cheaper access to credit.