How to ensure continued access to cash has been high on the regulatory agenda for several years. However, the Covid-19 pandemic has made the question more urgent. The UK Government is finalising its proposals for new legislation intended protect the sustainability of cash for the long term.

Cash crunch

The Covid-19 pandemic continues to accelerate pre-existing trends in cash usage as consumers increasingly switch to alternative payment methods. The figures available for 2020 show a significant year-on-year shift with the use of contactless and remote payments on the up and ATM usage going down.

Cash remains, however, an essential payment mechanism for many people and small businesses. In the UK over the last few years the regulators and Treasury have led several reviews, research projects and reports to understand better how people interact with cash.

Read Access to cash: The regulatory response to a tangible problem on our knowledge portal for an overview of the UK policymakers’ involvement in this area to date.

Adapting the infrastructure to lower cash volumes

As that note explains, the processes behind physical cash – such as production, delivery and distribution – were built for larger cash volumes. The more excess capacity there is in the cash system the more inefficient and costly it becomes, which has raised questions about the sustainability of the cash infrastructure.

To address this, the Treasury has created the Joint Authorities Cash Strategy (JACS) Group to bring together the Bank of England, Payment Systems Regulator and Financial Conduct Authority to oversee cash infrastructure across the UK. The JACS Group is tasked with ensuring that this infrastructure adapts so that it can continue to operate in a future environment of lower cash usage.

The JACS Group is also working with the Government to develop new legislation in this area. In its 2020 Budget the Government committed to bringing forward legislation to protect access to cash and the UK’s cash infrastructure.

Mapping ATMs

In the meantime, the regulators are continuing their own initiatives relating to cash usage.

Towards the end of 2020, the FCA and PSR released the findings from their collaboration with Bristol University on mapping access to cash. The results show that, although most consumers do have ATMs close to them, there is a noticeable urban-rural divide. The research also found a growth in the proportion of pay-to-use ATMs in deprived areas.

According to the paper, one avenue for further research would be to explore the “quality” of cash access. For example, whether expanding cashback to retail outlets would be effective in filling gaps in cash coverage. Currently cashback requires the customer to purchase an item to withdraw cash. Relaxing this rule may be part of the forthcoming legislation.  

Looking to the future – the battle between established and alternative payment methods

Cash is just one example of a diverse range of payment methods. Our Fintech Global Year in Review 2020 and Year to Come 2021 report predicts that the coming year will see competition in this area hot up as alternative payment methods battle for dominance.

In addition, as we have tracked in this blog, the Bank of England is among a group of central banks exploring the possibility of issuing their own digital currencies. Notably, in a recent speech, Chancellor Rishi Sunak highlighted that any CBDC in the UK would be “as a complement to cash” (as opposed to a replacement for cash).

This extract from a speech by Andy Haldane (Chief Economist at the Bank of England) sums up the likely cumulative outcome of these developments:

“If history is any guide, a co-evolutionary path is likely, with an eco-system of diverse and competing payments media and systems emerging, some wholesale, others retail, some private, others public. The technologies supporting these systems may also differ.”

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For a summary of recent policy work in this area, read our note Access to cash: The regulatory response to a tangible problem.