Financial inclusion, basic bank accounts, and the Cashless Debit Card
The Cashless Debit Card Symposium was held at both the University of Melbourne and the Alfred Deakin Institute on Thursday, the 1st of February 2018. The Power to Persuade is running a series of blogs drawn from the presentations made on the day. In this piece, David Tennant of FamilyCare Shepparton and Policy Whisperer Susan Maury (@SusanMaury) of Good Shepherd Australia New Zealand assess the Cashless Debit Card (CDC) as a tool for promoting financial inclusion, and find it comes up well short.
Financial inclusion and the role of bank accounts
People on low incomes are often juggling – and foregoing - household needs in order to make ends meet. The absence of affordable and appropriate financial supports and services can erode their ability to live a life with dignity, while reducing agency, wellbeing and leading to social and economic exclusion.
While financial inclusion is multi-faceted, in this piece we focus on access to bank accounts. Basic bank account access is central to financial inclusion, connecting people with community, business and government. Opening a bank account is also an important expression of personal choice and independence.
Financial inclusion in Australia
In 2010 the National Australia Bank (NAB) commissioned a study into financial exclusion. Access to a transaction account was one of three indicia of financial inclusion, along with access to a moderate amount of credit and the ability to protect key assets. This, the first Measuring Financial Exclusion in Australia report, described access to a transaction account as a universal need, noting a lack of access can stigmatise individuals and promote social exclusion.
An enviable 97.8% of adults in Australia have direct or indirect access to a bank account. There are several reasons why it is so high. Most important for people on low incomes or who experience other forms of marginalisation, our welfare system ordinarily requires that benefit recipients have a transaction account.
Australia also has a range of basic account products with low or no transaction costs. The growth in low or fee-free banking options has only gathered pace in the last 20 years, following a 1995 Prices Surveillance Authority review linking bank profits and account fees.
The Australian Bankers’ Association (ABA) applied to the Australian Competition and Consumer Commission for authorisation of a Basic Bank Account in May 2002. If passed, it would have permitted banks to conduct activities that would otherwise be categorised as anti-competitive and therefore illegal. Perhaps to avoid potential regulation, the ABA wanted to agree a set of account features, including:
- No account keeping fee;
- No minimum opening balance;
- Unlimited free deposits;
- Up to six free non-deposit transactions monthly, including up to three withdrawals.
The Commission’s draft Determination indicated authorisation was unlikely and the ABA withdrew the application. A review of low-fee accounts available today makes the 2002 proposal look overly modest. Market theorists might suggest that is because the ABA was not allowed to ring-fence the basic bank account concept, but it probably has more to do with the depth and breadth of public feeling about banks’ social responsibilities.
Whatever the motivations, low-cost transaction accounts are now a part of the modern financial services landscape. That does not mean it always has been or will remain so.
The Cashless Debit Card removes financial agency
The Cashless Debit Card (CDC) is linked to a transaction account, called a Welfare Restricted Bank Account, which does not allow cash withdrawals and excludes certain transactions. The card and account operate according to instructions provided by the Commonwealth Department of Social Services.
The CDC currently operates in two trial sites, with a third confirmed recently. Discussions about expansion have included whether ‘communities’ want the card and whether it helps address problems including substance abuse, anti-social behaviour and child abuse. Surprisingly little attention has been paid to personal choice and the longer-term impacts for people required to participate.
Cashless welfare trial participants receive a card from the account provider on instructions from Government. Their choice is to accept the card and operate the account on the prescribed terms or lose access to 80% of their benefit incomes. Options to be removed from the trials or to reduce the quarantined proportion of income are limited and controlled. To request a reduction in the quarantined proportion, participants must disclose information that would normally remain private. All individual transactions in the quarantined segment can be supervised by Government.
What is the goal of this drastic government intervention?
Governments sometime intervene to influence the accessibility and appropriateness of financial services, especially if market failures exclude or exploit vulnerable people. The cashless welfare card is a different intervention. Government is the customer, with the benefit recipient a third party in a contracting relationship over which they have little choice or control.
If a broader policy goal is to build financial inclusion, literacy and capability, reducing choice is an odd way to go about it. Research suggests many low income people feel disengaged from financial services, or are deterred from accessing and using transaction services for a range of psychological and cultural reasons. Choice is necessary for financial wellbeing, potentially more important than income level. Removing choice may lead benefit recipients to consider disengaging from a system that exerts control regardless of whether they exhibit any behaviours Government is trying to change.
Choosing to disengage may appear extreme but consider potential equivalents. For example, if accessing a Medicare rebate required patients to see specific doctors who gave their clinical notes to Government, most would consider the intrusion unacceptable. How many people who could only afford to see the Government-designated doctor would choose to go without? Regardless of whether benefit recipients chose disengagement over a cashless card, it is hard to reconcile the approach with consumer empowerment models like the National Disability Insurance Scheme and reforms in aged care.
Expanding the cashless card may also influence supply side behaviours. At present, delivery is managed by boutique financial services provider Indue. Talk of expansion has however attracted interest from large businesses, unsurprising when a national rollout may require the participation of over two million Australians. A group including the Commonwealth Bank, Coles, Woolworths, Aldi, PayPal and EFTPOS recently provided a report to Parliamentarians on the potential for expansion. A group spokesperson claimed, “The only thing difference about the cashless debit card is the limiting and prohibition of certain products.” (p. 9)
The claim ignores the removal of participant choice of account, provider, terms and conditions and a range of basic consumer protections and rights. Large scale expansion might also change the commercial incentives for maintaining a broad range of affordable basic bank accounts.
Poverty or participation
Poverty is not exclusively determined by limited material resources.
The United Nations’ definition of poverty includes the following:
"Fundamentally, poverty is a denial of choices and opportunities, it is a violation of human dignity. It means lack of basic capacity to participate effectively in society."
By removing choice about where income is directed and how it is spent, from people who already have very little, the experience of poverty is compounded. It is the absolute opposite of inclusion through participation.
To read more from the Cashless Debit Card Symposium, see: