Why cash legislation is critical for the growth of banking hubs.

Earlier this month, the UK treasury announced plans to fine banks if they fail to provide citizens with access to free cash withdrawal and deposit services ‘where they live’. The boundaries have been set at one mile in town centres, and three miles in rural areas.

The move comes as the UK’s high streets continue to evolve. Once a hub for commerce, many older retail chains that became household names in the pre-digital age have closed with the growth of ecommerce. While this doesn’t mean people don’t want shops any more, it just means they are visited less, and the economics change. 

What’s also changed, of course, is how people pay. 

The pandemic accelerated the growth of digital payments, and, as is the case with most pandemic trends, this created the illusion that online-first was here to stay, and is what people want. As is the case in retail, home-entertainment, the workplace, human behaviours are now reverting back to the norm, and there has been a relative global increase in cash usage, too, since 2021.

But with digital payments now accepted everywhere, digital banking now commonplace and fewer ATMs available, how do you maintain access to cash services?

This is a major issue. Many people continue to rely on cash as a means of payment, in particular vulnerable people such as the elderly, and those on low incomes.  Many prefer it, as a budgetary mechanism (the act of parting with physical cash is known to reduce the temptation of impulse purchases). And this is all the more important in a cost of living crisis.

Despite having a relatively advanced digital payments infrastructure in the UK, more than a quarter of people use cash more than once a week in the UK, and around five million - almost 10 percent of the population - use it daily. Upcoming legislation on cash access must be strengthened to protect these people.

The issue is that maintaining a presence on the high street and a network of ATMs is expensive. HSBC, one of the UK’s largest retail banks, is in the process of closing one-quarter of its branches with cost-cutting cited as the primary reason. 

Communities don’t need a wide choice of bank branches within walking distance. The UK’s retail banking sector has seen a longer-term transformation with the number of branches in the UK declining from 20,000 in the late 1980s, to around 5,000 today - as much due to consolidation in the sector as changing demand.

But the rate of closures has reached the point where campaigners are worried that in-person banking services may disappear entirely.

One such answer has been the emergence of banking hubs.  A joint venture between the banks, Link (which runs the UK’s ATM network) and the Post Office allows the partners to share infrastructure and collaborate to deliver community banking services. They can step in when a bank branch closes, or as a result of community requests and I can see these becoming the norm.

After a series of successful pilots, plans were announced in 2022 to open 27 such hubs but the rollout has been slow. Legislation to protect banking services has taken a long time to pass into law, while technical issues - such as building and maintaining the shared infrastructure required to make the partnerships work - have also reportedly delayed progress.

Cash may no longer be the primary method of payment for many people, but as I’ve said before, I think the notion of a completely cashless society is a myth and that we will always need a back-up and a failsafe. 

The issue is that the network effects that drive universality can also go in reverse. The fewer places accept cash, the fewer people rely on it and use it less, thereby justifying the closure of more ATMs and banks - at great expense to many in society. 

This is why maintaining affordable infrastructure and helping businesses to keep the costs of cash management low - through automating cash payments, minimising working capital, reducing theft, and issuing provisional credit - remains important.

Setting up new networks takes time, but the banks should not be allowed to withdraw their cash services before alternatives are established. This is why legislation is both necessary and welcome.