In an era of digital innovation and rapidly evolving financial landscapes, the question of whether we are moving towards a cashless society has become increasingly relevant. Recent news from the Financial Conduct Authority (FCA), as outlined in the Financial Services & Markets Act 2023, provides us with valuable insights into the state of cash usage in the UK and the government’s efforts to ensure reasonable access to cash deposit and withdrawal services. Let’s dive into the details and explore the implications of these developments.

The Current Landscape

The FCA’s assessment of cash access in the UK reveals an intriguing picture. Despite the closure of many physical bank branches, 95.1% of the UK population is within one mile of a free-to-use cash withdrawal point, which includes ATMs, Post Office branches, or bank/building society branches. Even more strikingly, 99.7% of the UK population is within three miles of such access. On the surface, it appears that cash remains easily accessible for the majority of people.

The Rise of Digital Payments

However, the numbers don’t tell the whole story. Over the past decade, there has been a seismic shift in how people make payments. From just 45% of non-cash payments a decade ago, the figure has surged to 85% in 2021. This surge is driven by technological advancements, with contactless payments, banking apps, and mobile wallets becoming increasingly popular. The COVID-19 pandemic further accelerated the adoption of digital payments, with contactless transactions dominating credit and debit card usage.

Cash’s Continuing Importance

Despite this digital revolution, cash remains a lifeline for some segments of the population. Approximately 3.1 million adults (6%) in the UK relied on cash for most or all of their payments in the 12 months leading up to May 2022. This reliance is particularly pronounced among individuals with vulnerable characteristics and many small businesses. It’s essential to recognise that not everyone can seamlessly transition to digital payments, and abrupt changes could disproportionately affect these individuals and businesses.

The FCA’s Approach

The FCA’s response to this evolving landscape is balanced and considers the diverse needs of consumers and small businesses. Their goal is to maintain a network of cash access facilities that aligns with the current distribution of services, ensuring that those reliant on cash can continue to withdraw and deposit it.

Key elements of the FCA’s approach include:

• Local Assessment: The FCA acknowledges that cash access needs vary across regions due to factors such as demographics, digital connectivity, geography, and transport infrastructure. They plan to propose rules focusing on areas where deficiencies in cash access could have a significant impact, particularly for vulnerable populations and businesses.
• Regulation of Cash Access: The FCA intends to designate banks and building societies subject to a new access to cash regime, requiring them to assess the reasonableness of cash provision when significant changes in local access are proposed. This includes branch closures, post office closures, or ATM removals. Community requests can also trigger assessments.
• Flexible Solutions: The proposed rules will provide flexibility for firms to fill gaps in cash provision, including the installation of shared services like banking hubs. The rules will encourage designated firms to coordinate with each other, ensuring comprehensive coverage.
• Monitoring and Data Collection: The FCA will use its new powers to collect information from cash access service providers and other entities involved in cash access services. This data will help them monitor coverage across the UK.

Looking Ahead

The government will designate which firms these regulations will apply to and may designate coordination bodies. Before implementing any rules, a full consultation, including a cost-benefit analysis, will take place. Depending on the outcome, these rules are expected to take effect by the summer of 2024.

In the interim, the FCA’s new Consumer Duty, which came into force on July 31, 2023, aims to provide higher protection for banking customers, especially those impacted by branch closures and ATM conversions. Firms must anticipate and address foreseeable harm to their customers before proceeding with closures or conversions.

In partnership with the Payment Systems Regulator (PSR), the FCA is committed to ensuring the resilience, cost-effectiveness, and accessibility of the UK’s cash infrastructure. Their goal is to meet the evolving needs of consumers and businesses while balancing the transition towards digital solutions.

Conclusion

The FCA’s latest directive demonstrates a thoughtful and measured approach to the evolving cash landscape. While digital payments continue to rise in popularity, cash remains essential for many in the UK. By ensuring reasonable access to cash deposit and withdrawal services, the FCA and the government aim to strike a balance between the benefits of digital innovation and the needs of individuals and businesses who still rely on physical currency. The coming years will be pivotal in shaping the future of payments in the UK, and the FCA’s approach seeks to ensure that no one is left behind in this evolving financial ecosystem.