This week saw the interim report from the Access to Cash team, a body set up to look at the future of cash, funded by LINK– the Scheme behind the ATM Network – and overseen by Natalie Ceeney, an ex-Financial Ombudsman. The report, and the BBC article accompanying it, highlighted revealing facts from ATM transactions declining by 8% in the course of the last year and the decline increasing by 5% since the beginning of 2018, to 37% of us still needing cash as local services and shops don’t yet take digital payments. Fortunately, as point of sale (POS) hardware technology replacement cycles are relatively short, contactless solutions will soon be ubiquitous, facilitating wider payment options for merchants and their customers.
Society is changing and spending behaviour has changed fundamentally in the last decade. More and more of us are becoming much more comfortable with non-cash payments. Many observers will point to the advent of chip and pin and contactless as the point of starting the reduction in cash use; however, the decline can be charted all the way back to the creation of the first credit card by Barclays and even to Direct Debits. The Access to Cash report refers to vulnerable consumers being disadvantaged by moves away from cash – specifically the elderly – and while current behaviour may be to use cash for many transactions, there is a proven link between cash usage and the “poverty premium”. History doesn’t show a similar level of reaction to automated payments like Direct Debits and the demise of paying by Giro slip at the Post Office.
Against the backdrop of evidential decline in cash, powerful arguments are posed in the report for the preservation of cash in society. We would argue equally powerful arguments exist to counter the clinging on to cash, and even to support accelerating moves to digital.
For rural areas, the solution is simple but admittedly not immediately easy. Rural communities can be and need to be served by digital payments. We already see a decline in bank branches and both the free-to-use and the fee-charging ATM estate across the UK, and this trend is most obvious in remote areas. Non-cash payments can better support rural consumers and businesses in the long term: customers are facing fewer outlets to obtain cash and businesses fewer options to bank it. Stockpiling more cash has an obvious disbenefit with reduced Police presence and overall, the costs (both in lost time and money) of cash handling increasing year-on-year. Interestingly, one solution seen elsewhere in the world, to reduce costs for ATM deployers is cash-recycling, which both reduces costly visits to fill and empty ATMs and reduces the number of notes in circulation. The commercials and technology both support a move away from cash.
Arguments are also presented that digital payments are restricted in rural areas due to weak or absent mobile connectivity. But, with constant advances in communications coverage, this is unlikely to be a sustained issue and is this really true anyway? Digital payments through mobile devices can work while the mobile device is ‘offline’, and we know their effectiveness from, for example, London’s Underground and the application of Near Field Communication (NFC), the same technology as contactless card payments. What’s more likely to be a challenge is basket-size, due the current transaction limit of £30 on contactless payments. Apple and iOS have already overcome this (where supported by POS terminals) and it is anticipated that ‘direct from bank account’ like the Pay by Bank app and solutions enabled by PSD2 will similarly increase limits at point of sale.
In addition, references have been made to the UK’s unbanked and underbanked population – c. 8-9m people – and their [again] perceived need for cash. Is this simply not a consumer ‘behavioural’ challenge? Recent legislation and regulation have mandated banks to offer ‘basic’ bank accounts as part of their product suites, precisely to accommodate these groups of society, and directly competing against the fee-paying pre-paid transaction account propositions. Where cards are provided with these accounts, they could become part of mobile wallets as well as a physical contactless card. The UK benefits system is also changing, and there is every benefit to transition recipients to digital payments, including, crucially, for the UK taxpayer, funds can be traced and accounted for, helping to reduce fraud.
We are encouraged to read the positive cases for digital payments made in this initial publication of the Access to Cash report. Consideration is clearly given to the benefits to society of digital payments. There is a strong theme throughout, that support must be given to the parts of our society currently less able to join the digital payments revolution. To be effective, and to drive inclusive digital payments, such support will require an understanding of both consumer and business behaviour as well as necessary the operational and technical considerations. This is a greater challenge than the introduction of Direct Debits, but a worthy one with a significant value to the economy.
The publication of the full report in early 2019 is eagerly awaited, and our anticipation is that it gives a balanced consideration to all perspectives about moving away from cash to digital payments, including the costs to the economy of handling and processing cash as volumes decline. If the necessary support exists from regulators, government and the participants within the payments value chain, forward-looking infrastructure and customer experiences will facilitate a positive move away from cash rather than society clinging on to the past.
Optimism over pessimism, pragmatism over nostalgia.
Notes about SRM Europe
Strategic Resource Management (SRM), Europe, is a subsidiary of SRM Inc. Recently established in Europe, its team includes deeply experienced payments and financial services consultants and an extensive network of associates. SRM Europe provides its clients with expertise in cost reduction, increasing revenue, organisation re-design, process re-engineering, programme management, wider transformation and the latest in AI and robotics technology support. To learn more, visit.
Thanks to my SRM colleagues, Dave Varney and Richard Bissett for contributing.
This article was originally posted here.