UK government sets out approach to protect cash system

By on 22/10/2020
Picture of shop with white front and red phone box
Britain: amid rising concerns about access to cash, the government has proposed legislating to allow shops to be able to provide cashback without a purchase | Credit: timajo; Pixabay

The UK government has set out proposals to protect access to cash. One suggestion is that retailers could provide cashback without requiring customers to make a purchase.

The ‘Access to Cash: Call for Evidence’ document follows the government’s announcement in the spring 2020 budget that it would “legislate to protect access to cash and ensure that the UK’s cash infrastructure is sustainable in the long-term.”

The challenge facing policymakers was previously outlined in the ‘Access to Cash Review’, published in March 2019, which called for government action.

In the UK the use of bank notes from 58% of payments in 2009 to 23% in 2019, according to figures from lobby group UK Finance. COVID-19 reduced this further and “will likely accelerate the trend of declining cash usage over the medium- to long-term,” wrote the economic secretary to HM Treasury John Glen in his introduction to the call for evidence.

“All this serves to heighten the risks to those that continue to rely on cash,” he added.

Cashback proposals

Cashback without a purchase could keep cash widely available by reducing cash infrastructure costs, according to HM Treasury. “When local shops accept and dispense cash, it is recycled through local communities and there is less need to transport and distribute notes and coins via cash centres, which reduces the associated costs,” the department noted.

Last year, consumers received about £3.8bn ($4.85bn) of cashback when paying for items, according to official figures. This made it the “second most used method for withdrawing cash in the UK behind ATMs”.

The end of the Brexit transition period on 31 December this year creates an opportunity to develop cashback without purchases, according to HM Treasury. “Current EU law makes it difficult for businesses to offer cashback when people are not paying for goods and this has been a barrier to widespread adoption. The government is now considering scrapping these rules once the transition period ends,” it said.

That is because, at the moment, cashback without a purchase is not explicitly exempted from the definition of a payment service under the EU’s second Payment Services Directive (PSD2), HM Treasury noted. So, at present, cashback without a purchase counts as a regulated payment service that usually only businesses with the appropriate registrations or authorisations – such as banks – are allowed to provide.

“We know that cash is still really important for consumers and businesses – that’s why we promised to legislate to protect access for everyone who needs it,” said Glen. “We want to harness the same creative thinking that has driven innovation in digital payments to maintain the UK’s cash system and make sure people can easily access cash in their local area.”

Merchants must be ‘compensated fairly’

Government must support retailers with these proposals, according to Andrew Cregan, payments policy adviser at trade association the British Retail Consortium. “Access to cash remains vital for many people and there are now fewer than 10,000 ATMs in operation in the UK,” he told Global Government Fintech.

“However, the government and regulators should ensure that, where cashback services are provided by retailers, there are appropriate mechanisms in place to ensure that merchants are compensated fairly,” he added. “Furthermore, plans to allow cashback at all shops would pose challenges for retailers who would often have to hold significantly more cash than normal – putting them at an increased crime risk.”

Peter McNamara, chief executive of ATM operator NoteMachine, also welcomed the proposals. “It’s positive the government is looking for solutions to protect access to cash. More than 30 million distinct cards are being used to withdraw money from ATMs every month, showing most adults still rely on cash. If people take money out at their local convenience store, that cash is more likely to be spent in local businesses, which is vital for the economic recovery.”

But he added a note of caution. “The safest and most economical way to provide access to cash is through ATMs,” he said. “It’s not always viable or safe for small business to keep large reserves of cash in store and so businesses shouldn’t be forced to fund this service. The government must ensure ATMs remain genuinely accessible.”

Other proposals in HM Treasury’s call for evidence, which closes on 25 November 2020, include giving responsibility for the retail cash system to the Financial Conduct Authority (FCA).

Under the current system, HM Treasury, the FCA, Bank of England and Payment Systems Regulator each play a role in this. HM Treasury said that co-ordination between these authorities “has been highly effective, particularly in managing risks to cash through COVID-19” but that “there may be significant benefits to giving a single authority overall responsibility for setting requirements to meet the cash needs of consumers and SMEs.”

About Ian Hall

Ian is editor of Global Government Fintech a sister publication to Global Government Forum. Ian also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo. Ian has an MA in Urban and Regional Change in Europe and a BA in Economics, both from Durham University.

Leave a Reply

Your email address will not be published. Required fields are marked *