Innovation needed to safeguard access to cash

Out-Law News | 19 Mar 2019 | 5:00 pm | 3 min. read

Innovation is needed to ensure businesses and consumers in the UK can continue to access cash in an affordable way, a legal expert on payments has said.

The recently published final report from the 'access to cash' review in the UK flagged the rising costs associated with the operation of infrastructure necessary to support a cash-based economy as the volume of cash transactions falls. The review found that cash is only used for three in every 10 transactions nowadays, compared to six in every 10 payments a decade ago, and that continued decline in cash use is to be expected.

However, the report also highlighted the level of dependence many consumers and businesses still have on cash despite the shift towards different forms of digital payment in recent years. It further warned of the UK "sleepwalking into a cashless society" before the country is ready to do so, given the impact this could have on some sections of the public.

"We identified risks [stemming from the loss of access to cash] to the viability of rural communities, the loss of personal independence and increased risks of financial abuse and debt," the report said. "We don’t believe that leaving this many people behind is an acceptable outcome for the UK." 

The review said that there are "some core public policy questions posed by the decline in cash, which need to be addressed". It said work needs to be done to make the infrastructure behind a cash-based economy "more cost effective, efficient and resilient", and that a new model is needed for "‘guaranteeing’ access to cash". 

The review said action is needed by the government, regulators, banks and other organisations that operate in the payments sector. 

The government for its part should establish a "clear … policy on cash", while regulators need to provide a "joined-up, systemic view of the cash system as a whole" and come together to work out what action needs to be taken to "achieve positive outcomes" where it is identified that the system is not working as it should, the review said. 

Banks need to play a "more proactive and responsible role in maintaining and innovating in cash supply, access and receipt", it said.

Andrew Barber of Pinsent Masons, the law firm behind Out-Law.com, said the challenge for businesses in the financial services industry "will be finding innovative ways to make cash available in an affordable way for those who might struggle without it, whilst still moving forward with developing digital solutions".

In response to the review, the Bank of England announced that it will "convene relevant stakeholders to develop a new system for wholesale cash distribution that will support the UK in an environment of declining cash volumes". The Treasury has separately opened a call for evidence on the role of cash and digital payments in the new economy.

LINK, the company behind a network of tens of thousands of ATMs in the UK, has committed to maintain a broad geographical spread of ATMs throughout the UK. Its general policy is designed to ensure that free-to-use ATMs are no more than one kilometre from one another, unless alternative means of sourcing cash are otherwise available.

However, in a speech last week, the chair of the Financial Conduct Authority (FCA), Charles Randell said that the UK "may need to go further to serve the cash needs of communities". He said this might involve "looking at increasing the number of ATMs which accept cash deposits as well as withdrawals, and other ways of keeping down the costs of local cash handling, such as cashback offered by retailers".

"The declining use of cash plays into a much broader debate about financial inclusion which includes the future of communities in a digital age, the way a range of public services are delivered and consumer education," Randell said. "We need to discuss not just who should pay for the cash system, but also what action government and local authorities should take to support people to adapt to a world where cash may not be accepted. And in the meantime, whether we should see cash as a public good, part of a fair society as well as a back up payment system if IT systems fail, the cost of which should be socialised; or whether the cost of cash should be borne by the (sometimes vulnerable) people who continue to use it."

The panel behind the 'access to cash' review is due to meet again in September to discuss the impact of its review and whether further action is needed.