CMS Analytics Supports Which?’s Call for Regulator to Protect Access to Cash
February 19, 2019
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The ability to access cash in the UK is becoming ever more challenging with reducing numbers of branches and ATMs alongside the heavy shift towards digital banking and payment methods. Which? is calling for government action to appoint a regulator to protect access to cash in communities around the country. A call which CMS Analytics strongly supports.
Phones Vs Branches
Globally, the way in which consumers are banking is changing. Consumers no longer feel the need to enter physical branches as the internet, and more specifically, mobile phones, provide the desired platform to undertake day-to-day banking, payments and transfers. In 2016, an independent review, the Access to Banking Protocol, found that banking apps were downloaded 22.9 million times in the UK. Figures from Which? indicate the detrimental impact on physical banking locations. The number of bank branches has seen a drastic decline, with 3,300 bank branch closures since 2015. The number of ATMs has also been decreasing with an average of 488 ATM removals per month from June 2018 to December 2018. Such limitations preventing people from accessing cash pose concern for society – particularly smaller or more isolated communities where channels to access cash are already limited and electronic payment methods not as prevalent.
Cause for Concern
A particular concern is that these closures are targeted at areas where economic transactions are low. The University of Nottingham carried out a study which revealed that between 1995-2012 the areas which saw the biggest closures of bank branches were those where unemployment was high and where a large portion of the population was renting houses from the public sector. The Campaign for Community Banking Services claimed in 2015 that the least affluent third of the population saw two-thirds of total branch closures and highlighted the scale of ‘unbanked’ communities:
Additionally, the study found that new or revamped branches were opening in wealthier areas with the hope to attract young people and keep more ‘stable’ earners comfortable. Therefore, without the regulation of such decisions, social and financial exclusion becomes increasingly prominent. For some consumers, cash is the main, if not the only, method of payment. Many groups including the elderly and disabled as well as small businesses are at heightened risk of such exclusion without having access to vital cash resources. If findings from the United States are anything to go by the outlook is worrying, particularly for the 45 and above age group. The 2018 Diary of Consumer Payment Choice indicated this demographic’s average cash usage is greater than other payment methods (Figure 1). This effect increases with age, with the 65 and over demographic relying most heavily on cash payments.
Figure 1: Payment Instrument Usage by Age 2017
Source: 2018 Findings from the Diary of Consumer Payments Choice
Impact on Merchants and Small Businesses
Cash is still the method of payment with the lowest cost of acceptance in the UK. It does not need a network connection or charging; cash is effective and largely accepted at low risk – especially for low-transaction value purchases. The British Retail Consortium’s 2016 Payments Survey showed the stark differential in acceptance cost between cash and other payment methods. The average cash transaction cost stood at 1.46 pence compared to debit cards at 5.55 pence and credit cards at 16.00 pence. The risk, however, is that cash costs are starting to rise – up 13% from 1.29 pence in 2013. Currently, cash remains the most used method of payment according to the UK Payments Survey 2018, despite decreasing in total value. However, if no regulation on accessing cash is put into place and cash volumes decrease, costs for merchants would rise – driven by the fixed costs surrounding cash. This presents a risk of acceptance on a large scale.
Access to cash is vital for society to ensure social and financial inclusion – particularly those in vulnerable groups and/or isolated areas. Digitalization is occurring, but cash is still relevant and more cost-effective than other methods of payment and therefore access should not be limited for any group or area. Ultimately, cash brings the unbanked and the underbanked into the banking system, and thus, the payment system. For these reasons, CMS Analytics strongly supports Which?’s decision for regulation.