The UK’s ‘Access to Cash Review’ team has called for a review of cashback charges as part of a new set of recommendations to government.
Proposals to protect the cash system were published by the government last month, including the suggestion that retailers be able to provide cashback without a purchase. In issuing its ‘Access to Cash: Call for Evidence’ document – for which the deadline for responses is today (25 November) – the government was following up on an announcement in March’s Budget that it would legislate to protect access to cash and ensure that the UK’s cash infrastructure is sustainable in the long-term.
Cash usage in the UK plummeted from 58% of payments in 2009 to 23% in 2019, according to figures from lobby group UK Finance. COVID-19 has further reduced cash use. The challenge facing policymakers was crystallised in the UK’s ‘Access to Cash Review’, published in March 2019, which called for government action.
In a 16-page submission to HM Treasury, the Access to Cash Review team lay out a series of reactions and recommendations to the call for evidence, addressing topics including challenges to overcome with encouraging cashback through retailers and, separately, the role of the Post Office network.
Cashback: costs to retailers ‘significant’
HM Treasury said, in its call for evidence, that cashback without a purchase could help to keep cash widely available by reducing cash infrastructure costs.
Last year, consumers received about £3.8bn ($4.85bn) of cashback when paying for items at a till – making it the second most used method for withdrawing cash in the UK behind ATMs.
In a collective submission to HMT, Access to Cash Review chair Natalie Ceeney and seven further review team members say they ‘strongly believe that cashback can play a greater role in cash provision’, pointing out that cashback is ‘significantly less utilised in the UK than in other markets’. But they assert that it costs retailers ‘significant sums’ to offer cashback. ‘Retailers are bound by commercial agreements with their merchant acquirers, who rarely differentiate between types of purchase. Therefore, it is not uncommon for a retailer to pay 3-4% per transaction, which represents a 60p-80p [$0.44-$0.59] fee on a £20 [$14.71] withdrawal. Unsurprisingly, many retailers are unwilling to bear this cost,’ they say in their submission.
This echoes the sentiment expressed last month by Andrew Cregan, payments policy adviser at trade association the British Retail Consortium, who told Global Government Fintech: “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.”
In their submission to HMT, Ceeney and colleagues also point out that various barriers that can prevent people asking for cashback, including the absence of a standard way of advertising/promoting whether the service is offered.
The Access to Cash Review team’s submission recommends that the Financial Conduct Authority (FCA) and/or Payment Systems Regulator (PSR) are asked to lead a review of charging/permissions for cashback with the aim of reaching agreement with industry that retailers wishing to offer the service should be suitably incentivised to do so.
The submission adds that if the FCA were to be given regulatory responsibility for cash access and deposits, it will be important to ensure that the FCA is also awarded sufficient resources to give it focus and priority.
‘Clarification’ needed on Post Office’s role
Ceeney and colleagues also say in their submission that it is ‘essential to clarify and secure’ the Post Office’s role. With about 11,500 outlets, offering banking and cash services on behalf of all major banks, it ‘seems obvious that the Post Office needs to be part of the solution’, they say. But they add that ‘there is currently concern by both banks and retailers about the cash and banking service standards offered by the Post Office, the consistency of the offering, and the longevity of the current arrangements’.
If the Post Office is to be a critical player in providing core banking services, it needs to be treated as such, they say.
They go on to say that the Post Office’s core reporting relationship into government through the Department for Business, Energy and Industrial Strategy (BEIS) ‘seems odd given the critical role it plays in the provision of financial services’.
‘We believe that it will be critical for the Post Office to have its financial services and cash services covered by conduct regulation, both for customer confidence and to ensure that the Post Office can truly discharge its responsibilities on behalf of the banks,’ they continue. ‘We also believe that some form of oversight should be established to end the risk that the Post Office banking framework could collapse if a single bank withdraws, while recognising that the retail banks also need to be confident that they are securing value for money.’
UK lawmakers are far from alone in wrestling with policy responses to decreasing cash use. Sweden, for example, has passed a law to maintain cash access, while Rainer Olt of Estonia’s central bank describes similarities with the UK situation in an interview with Global Government Fintech published earlier this week. He says: “As a central bank we are, of course, looking into declining cash use. A few years ago it was a really lively debate – banks were pulling out of rural areas, and ATMs were declining. As a solution, which is appreciated by people, is a cashback service that is offered in different retail chains across Estonia, covering the rural areas really nicely. It’s possible to withdraw or deposit cash [in retailers].”