Proposals to protect the UK’s cash system have been set out by the government, including the suggestion that retailers be able to provide cashback without a purchase.
In issuing its ‘Access to Cash: Call for Evidence’ document the government is following up on its announcement in the Budget seven months ago 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 fell 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 and “will likely accelerate the trend of declining cash usage over the medium- to long-term,” said economic secretary to the Treasury John Glen, adding that “all this serves to heighten the risks to those that continue to rely on cash.”
The challenge facing policymakers was crystallised in the UK’s ‘Access to Cash Review’, published in March 2019, which called for government action.
HM Treasury said that cashback without a purchase could help to keep cash widely available by reducing cash infrastructure costs. ‘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 said in the document.
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.
Need to ‘make sure people can easily access cash’
The end of Britain’s European Union exit (‘Brexit’) transition period on 31 December had created the cashback-without-a-purchase opportunity, according to HM Treasury. ‘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.
HM Treasury said that, unlike cashback with a purchase, cashback without a purchase is not explicitly exempted from the definition of a payment service under the EU’s second Payment Services Directive (PSD2). So, at present, cashback without a purchase constitutes a regulated payment service and ‘generally’ only suitably registered or authorised businesses such as banks and payment institutions are permitted to provide payment services.
“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’
Reacting to the cashback-without-a-purchase proposal, Andrew Cregan, payments policy adviser at trade association the British Retail Consortium, told Global Government Fintech: “Access to cash remains vital for many people and there are now fewer than 10,000 ATMs in operation in the UK. 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. 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, said: “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: “The safest and most economical way to provide access to cash is through ATMs. 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, include rolling responsibility for the retail cash system into the Financial Conduct Authority (FCA).
At present, HM Treasury, the FCA, Bank of England and Payment Systems Regulator each have roles and responsibilities for oversight of the system. 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’.