In the UK Government Budget of the 3rd March it was announced that the upper limit for contactless card payments was to be lifted from £45 to £100. This reflects the rapid rise of contactless card payment (which began before the pandemic, but has accelerated during it), the growth of online transactions and payments and the decline in the use of cash. The following day Amazon announced the opening of their first till-less electronic payment only store in London.
There are a number of apsects to these announcements and the underlying trends they reflect, some positive and some negative and there are concerns about people for whom cash is critically important for a variety of reasons.
I invited an ex-colleague of mine who has looked at this and other financial services issues for most of his career, Professor Steve Worthington of Swinburne University Business School, Melbourne, Australia to provide some thoughts on the issues raised. He writes:
“The pandemic has turbo charged the transition from paying by cash, to paying by digital transactions. The increased reluctance to either pay with or accept cash, may be partly attributed to fears (often unfounded), about how bank notes and coins may carry the infection and hence it may be transferred by the handling of cash.
The increase in on-line purchases has also played a major role in the diminishing use of cash, as consumers unable or unwilling to shop in person, purchase on-line. For those face-to-face transactions that still occur, the rise of the contactless payment card has made their usage more acceptable, as there is less likelihood of a transmission of the virus, because the card is not exchanged between people and social distancing can be maintained.
The limit on contactless card transactions is currently £45, but the Financial Conduct Authority (FCA) announced in January 2021, that it was seeking to raise that limit to £100, as the number of retailers accepting cash, continues to fall, and this was announced in the recent budget. Such a move would put further pressure on the cash infrastructure that underpins the availability and use of cash as payment instrument.
Link, the UK’s largest cash machine network, said in January 2021 that there had been a 38 per cent decline in ATM transactions in 2020 and that the number of ATMs had declined by 10 per cent in the same period. At the same time many banks are closing some of their branches and/or reducing the hours that they are open for customers. Thus, the decline in the use of cash is something of a self-fulfilling prophecy, as cash becomes both more difficult to access and at the same time, there are less and less opportunities to use it.
The charity Age UK has written an open letter to the FCA, warning that the rush towards a more cashless society could leave to some older people being excluded from paying their way with cash. Age UK is also concerned that banks are ‘encouraging’ customers to use digital channels. This would further exclude senior citizens, as it is believed that one third of the 70 plus population in England (the equivalent of 2.3 million people), live in a household without access to the internet. Other members of society who are vulnerable to digital exclusion include the poor, those with disabilities and people who live in rural areas.
There are a variety of responses to this issue of financial exclusion, for those who prefer to use cash. In September 2020, the EU Council of Justice declared that cash is a public good and must be accepted by retailers. The Advocate General of the Council stressed the key role that cash plays in social inclusion and that it is also an important factor in personal freedom and privacy.
In the USA, a broad spectrum of consumer representatives and businesses announced in May 2020, the formation of the Consumer Choice in Payment Coalition (CCPC), seeking to preserve the right of American consumers to pay with cash. Their priority is supporting the passage of the Payment Choice Act of 2019 in the US Congress. If enacted the law would maintain national acceptance of cash payments for consumer purchase of goods and services, at bricks-and-mortar retail outlets. The CCPC claims that cash payments have widespread public support, citing recent moves by the state of New Jersey and cities including New York, Philadelphia, and San Francisco, to enact laws requiring retailers to maintain a cash payment option.
In the UK, the 2019 Access to Cash Review, found that 17 per cent of the population rely on cash, with vulnerable communities such as the poor and those in rural areas, at particular risk from reduced access to cash. The UK Government has committed to introducing new rules to ensure that cash remains available to those who prefer it to the digital alternatives. The Government is also proposing to provide the FCA with overall responsibility for maintain a ‘well-functioning’ retail cash system.
There are already initiatives being explored to address the demise of bank branches and ATMs in the UK. The Post Office is trialing ‘Banking Hubs’, which involve sharing retail space with high street banks who have closed their local branches. These hubs are part of a wider scheme setup under the Community Access to Cash Pilots (CACP), that includes six other projects with local communities trialing different measures. These include making it easier for shops and pubs to offer purchase free ‘cashback’ to consumers.
Furthermore, the FCA has warned banks that every time they plan to close a branch or an ATM, they will need to provide an analysis of the impact on customers access to cash. This will include the needs of the customers currently using this branch or ATM; the impact of the proposals on those customers and alternatives that are or could reasonably be put in place.
So the message to us all is, ‘Cash: Use it, or Lose it!’”