The UK is not ready to go cashless. Some 17% of the UK population – over 8 million adults – would struggle to cope in a cashless society. That is the key soundbite in the Access to Cash Review final report, released as EPI goes to press.
The Access to Cash Review was commissioned as a response to the rapid decline in cash use. Ten years ago, six out of every ten transactions were cash; now it is about 34%. Banking industry association UK Finance predicts that cash will fall to 16% of payments by 2027; in 15 years’ time, it could be as low as one in ten.
The report recognises that for many people, using cash is not a matter of choice, but of necessity. Digital payment options just do not yet work for everyone. The report also correctly identifies that there is a misconception that the elderly are the most reliant on cash; poverty is the biggest indicator of cash dependency, not age.
While cash usage is falling, on a typical day about £350m ($462m) is withdrawn from UK ATMs via five million withdrawals. On the single busiest day of the year for the ATM network, usually just before Christmas, £700m can be withdrawn through around eight million withdrawals.
The report recognises that the UK consumer is currently well treated. The UK is relatively unusual in that most cash access channels are free: between 97% and 98% of cash withdrawals are free, despite charging ATMs accounting for 18% of all ATMs. One can also add other channels such as Post Offices, bank branches and supermarket cashback.
UK consumers enjoy pricing advantage
By contrast, in the US, Canada and Australia for example, there are significant networks of independent, non-bank ATMs. These almost always charge users an up-front fee, which may also be combined with a bank’s issuer charges.
In the US, average out-of-network ATM fees were $4.57 in 2016. German banks generally charge for withdrawals at another bank’s ATM, and fees range from €1.95 ($2.20) to €5. Issuer charges are common in many other countries, where banks charge to use another institution’s ATMs. In the UK they were abolished around 1999-2000. There is nothing to prevent a bank from reintroducing them, but competitive pressures have prevented this.
ATM deposits: a missed UK opportunity
There are other significant peculiarities to the UK market. Take ATM deposits for example: common in other European markets, ATM deposits are a missed opportunity in the UK. There are 16,000 bank branch ATMs in the UK, of which 10,000 offer cheque-deposit facilities, but only to their own customers. The idea of sharing these facilities was raised in 2014, but Link could not persuade any of its members to let customers use the service. With no ability to compel participation and no further regulatory interventions, this shared service still is not being used.
The report makes a number of recommendations to ensure consumers can access and use cash for as long as needed. In particular, this is more than just ensuring access to ATMs: the report suggests there is potential for new ways of providing cash access, which could both widen access and help keep the high street alive.
Secondly, the report argues for the need to take steps to keep cash accepted. Then there is the argument that a radical change to the wholesale cash infrastructure is needed. This would mean moving from a commercial model to more of a ‘utility’ approach. The fourth recommendation is for government, regulators and the industry to make digital inclusion in payments a priority.
The final recommendation is for clear government policy on cash, supported by a joined-up regulatory approach. And this will be a challenge. The three UK regulators, by all accounts, welcome the report. The FCA, Payments System Regulator and Bank of England say they recognise a need for action. The BoE says it will convene relevant stakeholders to develop a new system for wholesale cash distribution.
If, however, the UK Treasury and the regulators do not come together, cash has an uncertain future. There is currently no discernible UK government policy on cash, and the government has steered clear of taking action when bank branches and ATMs have closed; according to the government, these are commercial decisions. But with conflicting commercial interests, UK government ministers in general, and the Treasury in particular, will have to lead. For a government currently sidetracked by its never-ending self-induced Brexit muddle, banking on Treasury action may be somewhat optimistic.