Cold, hard cash is slowly dying. Picture via Getty Images
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- Paper money harms the environment through deforestation and energy use
- Cashless payments are now on the rise – Sweden leads, Australia sees growth
- We look at some digital payment stocks on the ASX
The old saying goes: “money doesn’t grow on trees”. But paper banknotes are most certainly a byproduct of them.
The World Wildlife Fund said that mills around the globe churn out 400 million tons of paper each year, a lot of which becomes banknotes and contributes to deforestation, which in turn accounts for about 12% of greenhouse gas emissions.
Not only does printing money have a hefty environmental impact, but the durability of paper notes is also an issue.
For instance, a $5 bill lasts just 16 months on average before needing replacement.
Many countries, including Australia, now use a mix of recycled materials to make their notes, which helps reduce the need for fresh resources.
However, coins are another environmental concern: their production involves a lot of energy. For instance, the US Mint is using more than 40,000 tonnes of metal each year to produce them.
Plastic debit and credit cards are even worse for the environment than paper money. They are made from polyvinyl chloride (PVC), which is derived from oil and isn’t easily recyclable.
Making just one card uses around 4.25 grams of petroleum, and with 3 billion cards in use worldwide, that’s a huge amount of oil consumption.
But plastic cards have a longer lifespan – up to eight years – which balances out their environmental impact somewhat compared to the shorter life of paper money.
The rise of cashless payments
In 2018, experts predicted that a cashless society was still a couple of generations away.
But the COVID-19 pandemic in 2020 sped things up, pushing more people towards online shopping and cashless payments. As tech advances and consumers stick with these new habits, the use of cash payments has gradually been falling.
Globally, there’s a rise in alternative payment methods such as digital wallets, prepaid cards, and cryptocurrencies.
Sweden, which introduced banknotes in 1661, became the world’s first truly cashless country on March 24, 2023.
Finland and the UK are also on track to go cashless soon. Meanwhile, Poland has decided against restricting cash payments to keep options open for everyone.
In the Asia-Pacific region, countries including Australia, China, Hong Kong, India, Japan, Korea, and Singapore are leading the way in digital payments.
In Australia, card payments made up most transactions in 2023, with cash use plummeting from 70% in 2007 to just above 10%. Some banks have even stopped handling cash transactions in certain branches.
Central banks, including Australia’s Reserve Bank and the European Central Bank, are now exploring digital currencies or Central Bank Digital Currency (CBDC), to complement cash.
These offer convenience and transparency but concerns remain about financial exclusion, privacy, and security. Those most at risk include people with disabilities, undocumented workers, refugees, abuse survivors, and residents of remote areas.
Digital payments also rely on tech infrastructure, which can be vulnerable to cyberattacks, power outages, and other disruptions.
For instance, in 2022 Tasmania faced a six-hour internet outage affecting electronic payments, which forced some businesses to revert to cash.
To mitigate such issues, some US cities such as Philadelphia, San Francisco, and New York have banned cashless stores.
In Australia, the government is revising the Payment Systems (Regulation) Act to regulate digital wallets including Apple Pay and Google Pay alongside traditional payment methods.
Meanwhile, despite predictions, cryptocurrencies have not been widely adopted as a mainstream payment method, largely due to their price volatility and – in many cases – slow transaction speeds, which make them less practical for everyday use at this point in time.
The high electricity consumption required for mining Bitcoin (not all cryptos are ‘mined’, however) has also raised environmental concerns.
Aussie companies want to go cashless
And here’s some good news. Nearly half of Australian businesses are gearing up to invest in digital payments over the next year, according to new research from the University of Sydney.
The survey looked into business owners’ use and attitudes towards digital payment methods such as tap-to-pay, buy-now-pay-later services, and digital wallets.
The report revealed that 46% of businesses are now using four or more payment methods, and 45% are keen to upgrade their existing systems.
The sheer size and potential of this market has attracted companies to launch their own products in Australia, including global players including Apple, Google, Block, and China’s WeChat Pay.
Apple Pay is one big player that’s been rapidly grabbing more of the pie, with some analysts calling it the biggest fintech disruptor right now.
Mark Healy, the CEO of payments fintech company Novatti (ASX:NOV), explained that legacy players, global tech and small fintechs are all jostling each other for market share.
“You’ve got these fintechs that are innovative and have features-rich products, and you’ve also got big-tech players that are muscling their way in,” Healy told Stockhead.
Healy said that Apple is simply leveraging its exisiting customer base and technology to jump into the payments space.
“Instead of the consumer taking the card out of their wallet and tapping on to the terminal, Apple embedded that process in the phone.
“Who would have thought that putting that card in the phone and using the phone instead of the card would be so adopted at scale?” said Healy.
But the pace at which digital payments is advancing has prompted the government to act quickly. Treasurer Jim Chalmers announced last year that the Reserve Bank will get more powers to regulate fintech payment services.
ASX companies in the digital payments space
Novatti enables businesses to pay and be paid from any device, anywhere, and include transactions such as purchasing, billing, issuing, and processing.
In FY24, Novatti underwent a significant strategic transformation, which involved streamlining its business by consolidating from 12 separate entities into four core divisions and cutting $7 million in annual costs.
This restructuring led to a 10% increase in revenue to $42.9 million and a 16% improvement in underlying EBITDA, though the latter remains negative.
Looking ahead, Novatti expects the full benefits of these changes to become more apparent in FY25, with a target of achieving positive operating cash flow by mid-2025.
The company is also aiming for a 70% gross margin on payment processing over the next three years.
Change’s technology offers Payments as a Service (PaaS) solutions to businesses and financial institutions, providing infrastructure and tools for building customisable payment solutions.
The company signed an exclusive six-year direct issuing partnership deal with Mastercard in Australia and New Zealand, enabling Change to issue prepaid and debit cards under the Mastercard logo.
Change also has its own payments platform, Vertexon, a Payments as a Service (PaaS) offering which provides quick-to-market card and payments solutions to banks and fintechs around the world.
Although its focus is on card payments, the Tyro BYO App lets people to use digital wallets like Apple Pay, Google Pay, and Samsung Pay.
Once you’ve been approved by Tyro as a customer, to use Tap to Pay on iPhone you simply have to download the Tyro BYO App and start accepting contactless payments on the iPhone.
Tyro was was the subject of a bid from private equity firm Potentia, which has since backed off.
In FY24, Tyro Payments delivered a stellar performance, with gross profit climbing 9.1% to $210.8 million, thanks to a successful pricing overhaul.
The company also saw a four-fold increase in net profit to $25.7 million and a five-fold boost in free cash flow to $30.4 million.
Looking to FY25, Tyro plans to enter new verticals such as unattended payments and a health-adjacent market.
Tyro has forecasted gross profit between $218 million and $226 million, with an EBITDA margin around 28%, and aiming for long-term sustainable growth with a ‘Rule of 40’ target for FY26 and beyond.
The Rule of 40 states that a company’s revenue growth rate plus its profit margin should be at least 40%.
EML provides a global payment solutions platform, and says it powers over 80 billion transactions annually.
The B2B company operates across 32 countries including Australia, the UK, Europe, and the US, with clients including major banks in Europe, government and retail brands.
EML has just wrapped up the sale of its Ireland-based Sentenial business to GoCardless for €32.75 million (about $53.4 million).
This move is a big win for EML, according to the company, as it will use the proceeds to pay off its debt, flipping its balance sheet from net debt to net cash.
The deal also includes a potential earnout, which could bring in extra cash based on new contracts signed by Sentenial.
MoneyMe is an online lender founded in 2013. It was named Digital Disruptor of the Year in the 2022 Finder Innovation Awards.
MoneyMe offers a virtual credit card that you can use for online and in-store purchases through Apple Pay and Google Pay.
The MoneyMe Freestyle Virtual Credit Card is managed entirely through the mobile phone.
Once approved, people receive their card details instantly via the MME app, eliminating the need for a physical card.
People can start using the MoneyMe credit card right after approval, without waiting for it to arrive in the mail.
It also supports mobile payments, allowing people to tap to pay in stores and shop online seamlessly with Apple Pay or Google Pay.
The MoneyMe app simplifies managing accounts, letting people check balances, review transactions, and access features like peer-to-peer transfers.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.
At Stockhead we tell it like it is. While MoneyMe is a Stockhead advertiser, it did not sponsor this article.
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