Protecting access to cash and banking services

Speaker: Sheldon Mills, Executive Director, Consumers and Competition
Event: Which? Cash Summit 2.0 – Cash access and acceptance
Delivered: 13 May 2021
Note: this is the speech as drafted and may differ from the delivered version

Highlights

• Based on our evidence, we believe that access to cash across the UK is generally good for most people. However, as the future of cash and branch banking evolves, government, regulators and industry need to play their part in maintaining good access.
• The Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR)[2] are committed to protecting access to cash, particularly for cash reliant vulnerable consumers.
• Legislation is essential to protect access to cash, but we want individual firms and the wider industry to play a role. We expect individual firms to protect the ability of their customers to access cash and other services that meet their needs when they close branches.
• We must work together to protect the ability of consumers and businesses to access cash and banking services. The FCA and the PSR will continue to work in an open and transparent way with consumer bodies and the firms we regulate to achieve our desired outcome, including using the full range of regulatory tools available to us where we need to.  

Although most people can access cash and essential banking services, government, industry and regulators need to act to make sure it stays that way. We published a statement[3] this morning setting out our role in protecting access, how we are working with other regulators and government, and how we expect individual firms to protect the ability of their customers to access cash and other services that meet their needs when they close branches. We also welcome the industry’s proposal to work together to protect access.

Today, I want to briefly set out the current state of cash use, and how it’s changing, before setting out what the FCA wants to see happening now to help maintain appropriate access to cash. 

I remember as a child and my mother ensuring that we were able to know down to the last penny how much we would spend on food. Budgeting was essential and cash helped with that. Now there are budgeting tools to support that, supermarkets have tools in store so you can monitor your spending as you shop. Online shopping can do the same. But we know that many are still reliant on cash and they should have the choice to continue to do so.  

Where we are with cash and banking today

Let me begin by setting the context: the nature of cash and bank branch usage is changing.

Cash use is declining, fewer people are visiting bank branches and branches are closing as the traditional network evolves. Our own Financial Lives[4] data shows that branch use has declined significantly. In the 12 months to February 2020, 50% of adults with a day-to-day account carried out banking activities face to face in-branch, down from 63% in 2017. 16% of adults reported that a branch they used regularly had closed in the last 12 months.

Which? reported recently that banks and building societies have closed (or scheduled the closure) of 4,188 branches since January 2015, at a rate of around 50 each month.

Advances in technology have led to innovations in the payments market like contactless payments and mobile wallets that are faster and safer than ever and increasingly popular. For example, 84% of consumers had made a contactless payment in the 12 months to February 2020, up from 63% in 2017; 59% used PayPal to pay for goods and services, up from 47% in 2017; and the use of mobile wallets doubled from 13% in 2017 to 27% in February 2020. Many consumers and businesses now prefer cards to cash.

However, a large number of consumers still rely on cash and cannot easily switch to digital alternatives. Before the pandemic, cash payments represented 24% of all transactions, having been the most frequently used payment method as recently as 2017. ATM withdrawals fell 40% year-on-year across 2020, although recent data shows an increase in withdrawals as restrictions have been eased.

Our Financial Lives Survey in 2020 found that 5 million adults considered that they relied on cash to a great or very great extent. These 5 million adults use cash for most of their purchases.

One in seven of them, 750,000 people, self-reported to have struggled to cope, or did not cope at all with the temporary closures of cash access points and branches during the pandemic.

Importantly, many who fall in this group are vulnerable and elderly customers, or small businesses.

These groups also disproportionately rely on access to wider banking services through branches. Data from our Financial Lives Survey this year shows that 3 in 10 adults with health-related characteristics of vulnerability have problems dealing with customer services over the telephone, an alternative to bricks and mortar services often thought of as more accessible than online services.

The transition from face to face services to online or telephone will take time and sometimes it’s only a face to face interaction that can help access.

In addition to being able to access cash, people continue to seek in-person assistance in a branch, whether it’s help with bill payments, checking transactions or making larger withdrawals.

Access is generally good

But how does the supply of cash measure up to those trends in demand?

As part of the Joint Authorities Cash Strategy Group[5], alongside the Bank of England and HM Treasury, the FCA and the PSR have been collecting evidence, data and research, on access to cash. Last year we undertook research with the University of Bristol[6] on trends in cash access in the UK, current gaps in the coverage of the cash network, and the changing nature of cash access points.

Following on from this, we are collecting an updated data set from firms and intend to publish an updated assessment of the UK’s cash infrastructure in July, alongside consumer research exploring the needs and preferences of people that view themselves as reliant on cash.

Based on our evidence, we believe that access to cash across the UK is generally good for most people. 95% can access cash in urban areas within 650 metres and in rural areas within 3.5 km. Only around 150,000 people live more than around 5 km away from their nearest access point.

And of course, in addition to bank branches, Post Office counter services and ATMs provide a significant and important part of the existing geographic coverage. The Post Office has national access criteria requiring that 99% of the population must live in areas within 3 miles [or 5 km] of their nearest Post Office, and 90% within 1 mile [1.6 km].

The ATM scheme LINK continues to maintain a broad geographic footprint of free-to-use ATMs, including through incentivising the provision of free-to-use ATMs which are more than 1 km from the next one.

So, to bring these pieces together, we see that cash usage is declining, but that those who still rely on it are some of the most vulnerable. Current coverage of access to cash and banking services is good thanks to a combination of bank branches, Post Offices and ATMs.

However, the declining use of cash increases cost pressures for firms, making it important to innovate and find new ways to maintain access that meets the evolving needs of society.

Protecting access to cash whilst needs evolve

From our perspective, it’s a crucial component of a well-functioning retail banking market that consumers and business can access cash and banking services in a way that meets their needs, with particular care being taken over the needs of vulnerable customers.

We have seen that a loss of access to cash and banking services can have a significant impact on local communities, and changes may not meet the needs of those in local communities who rely on cash. Previous research by Which? showed that when a free-to-use ATM is lost in a rural area, residents have to travel around three times as far to the nearest free-to-use ATM than those in urban areas.

Many face common barriers to access such as having to pay to use an ATM, or because a service has been withdrawn through a bank branch closing. 

There are significant benefits from building on the foundations of these existing services – they are established, and many consumers and businesses already rely on them. 

Crucially, we announced this morning that we want individual firms and the industry to play their part in protecting the ability of people to access cash and banking services in their local area in a way that meets their needs.

In September 2020, we published guidance[7] setting out our expectation that firms should consider the impact of branch and ATM closures on their customers’ everyday banking needs and consider the availability and provision of alternatives. 

We have been supervising branch closures closely, assessing plans based on risk of harm posed to consumers. In January 2021[8], we asked banks to pause closures where they are unable to meet the expectations laid out in our guidance due to the coronavirus lockdown.

Firm responsibility and providing alternative access

Individual firms are responsible for making sure that when they close a branch or ATM in a local area, there are alternatives available to provide services at a standard of service that meets the needs of the customers using that branch or ATM.

Firms will need to consider the ability to withdraw and deposit cash, safety, accessibility and opening times.

Over the short-term this is likely to rely on the current alternatives to branches to a large extent, such as the Post Office and LINK services.

Over the longer-term we believe that new services will become available to meet the needs of consumers and businesses alike. Shared branches, cashback and deposit points might become commonplace in some areas, while more consumers embrace digital technology, and many use less cash.

The opportunity for collaboration

This is a turning point for the banking market though, and it does provide some opportunities for industry to find solutions to meet the challenge of maintaining access to cash.   

While industry must always comply with competition law, we welcome its commitment to take forward action to protect access to cash and close gaps in provision. This work should also take account of regulatory and legislative developments and does not replace the individual responsibilities of firms.

We also welcome the wider financial services industry actions to identify new ways to support local community access. This can build on the work already underway through the Community Access to Cash Pilots. Innovative new methods such as banking hubs and cashback without a purchase are already being piloted across the country and we are keen to see the outcomes of this work and how these solutions can be applied more widely. 

Next steps

While legislation is essential to protect access to cash in the face of declining demand, we want individual firms and the wider industry to play a role now. We must work together to protect the ability of consumers to access cash and banking services. 

We have said what we expect from individual firms and will continue to supervise how they treat their customers when closing branches. We expect the industry action group to take forward its work transparently and in partnership with other stakeholders such as consumer bodies. We expect that work to be completed later this year, and we will engage closely with the industry and monitor progress. 

Alongside what firms and industry are doing, organisations such as Which? have an invaluable role in helping to support efforts to protect access to cash. The Freedom to Pay campaign and now the Cash Friendly Pledge are great examples of this, and there are similar initiatives by other groups. 

Following on from our work with the University of Bristol last year, we intend to publish an updated assessment of the UK’s cash infrastructure in the summer, alongside the FCA’s recent consumer research into cash use. 

The FCA and the PSR will continue to work in an open and transparent way with consumer bodies and the firms we regulate to achieve our desired outcome, including using the full range of regulatory tools available to us where we need to. We will work with the government as it develops its legislation.

As I said at the start, the nature of cash use and everyday banking is changing, and we should acknowledge that and help people to transition where they are able to. However, we must also all work together to protect the ability of consumers to access cash and banking services in ways that meet their needs.