If not quite still king, cash still matters to millions
This week I am sharing further thoughts on Committee stage of the Financial Services and Markets Bill, completed just days ago in the House of Lords. Yesterday, I wrote about regulator accountability and today I address the many critical questions around cash, then, later in the week, digital ID and AI.
The Government was clear that this Bill was going to deal with preserving the right to access to cash but our Committee Stage debates in the Lords highlighted just how complex these questions are. Preserving a right to cash alone will not address related issues with access to banking services or even the ability to spend your cash should you be able to access it.
On the subject of bank branch closures, Baroness Tyler pointed out:
“…there are currently some 5,000 branches in the country. By comparison, there were some 20,000 branches 30 years ago. Indeed, since the Bill entered Parliament on 20 July 2022, there have been 390 bank branch closures. Some estimates suggest that as many as 4,000 of the branches which still exist could close in the coming years, leaving an unrecognisable banking landscape about which customers have had no choice and no voice.”
Baroness Tyler proposed a solution that would require designated parties to comply with a direction given by the FCA to establish banking hubs – including a broad definition of a banking hub that would ensure that a banking hub would actually be able to offer banking services. As she said, banking hubs could provide a lifeline…
“We know that 5 million people still rely on cash, particularly to budget week to week. There is also a big overlap between those 5 million and the millions who are digitally excluded, deprived or otherwise vulnerable. We should not restrict the ambition of the Bill just to withdrawing cash.”
In precisely this vein I tabled my own amendment in which I suggested that all high streets of a specific size should have banking services which include deposits. If we are to seriously address the question of cash and ensure we are preserving the right to use cash then one of the major issues with acceptance of cash, specifically for small businesses, is what they do with that cash once they have it.
It cannot be that cash becomes burdensome and expensive, particularly for small and micro-businesses. It cannot be that they have to spend an hour at lunch or the end of the day potentially closing their premises to drive to the next town or village to deposit the cash.
A related point on the resilience of the cash network infrastructure led to another of my amendments that would require that we classify the cash network as critical national infrastructure. The Access to Cash Review reported that “in Sweden, we were repeatedly advised by central bankers, consumer groups and a cross-party group… [that] once their infrastructure had gone, putting it back was close to impossible”. I often think about Alan Greenspan (Chairman of the Federal Reserve Bank) in the aftermath of 9/11 saying,
“We’d always thought that if you wanted to cripple the US economy, you’d take out the payment systems. Banks would be forced to fall back on inefficient physical transfers of money. Businesses would resort to barter and-IOUs; the level of economic activity across the country could drop like a rock.”
For reasons of both financial inclusion as well as the current geopolitical situation designating the cash network as critical national infrastructure seems sensible.
My final two amendments in this group were designed to address “accessibility of financial services and financial products” and require an “access to digital financial services review”. Both of these amendments are about financial inclusion.
What I mean by ‘accessibility of financial services’ can perhaps best be illustrated by a personal example. For years, card payment machines worked well for me. They had raised numbers and a dot in the middle of the “5” key so everybody – visually impaired people included – could use them independently. Now a rapid rise in the use of flat-screen card payment machines means that millions no longer have that same experience of an accessible service.
Technology can so often improve accessibility although in this instance a previously accessible process through technological update, change and rollout, is now inaccessible. My amendment would ensure all financial services and products are accessible for all users.
Further, my proposal for an access to digital financial services review follows the same logic as the access to cash review. There is no longer a separate world of digital.
The move from offline to online was already well underway before the pandemic but has accelerated, indeed, my colleague Baroness Noakes who is far less convinced of arguments in favour of preserving cash, due to the costs involved, was much more positive about these plans. She too is…
“…certain that the future is digital, and the real need in the medium term is …. to incentivise the financial services sector to make digital payment systems more accessible and inclusive. The best fintech brains should be put to work on this, and the banks need to see that it is in their interests to support innovation. This is where the regulators should be putting their efforts.”
It was good to have this level of consensus on the need for inclusive and accessible digital financial services, but we still need access to cash, as well as acceptance of cash; access to banking services on every high street; cash as critical national infrastructure; as well as an access to digital financial services review. When speaking in the debate I appealed to the Minister to behave like a “retro TSB marketing campaign and, for all these amendments, be the Minister who likes to say yes”.
When she responded, the Minister, Baroness Penn, pointed out “the nature of banking is changing. In 2021, 72% of people banked online, and 57% on their mobile phones. Meanwhile, 85% of payments were made without cash, up from 45% a decade earlier, and 86% of UK adults used contactless payments”.
She continued to set out further measures the Government have taken…
“When it comes to digital payments, the Payment Systems Regulator has launched a call for evidence on the future direction of payments regulation, and we would welcome representations to it.
“On digital connectivity, in 2020, the Government announced a £1 billion deal with mobile network operators to deliver the shared rural network and reach 95% coverage. There are also commitments around the rollout of high-quality broadband. On digital skills, we have in place a pledge to ensure that all adults who have low or no digital skills can take up a level 1 qualification free of charge.”
The current and future direction is digital, that future must be inclusive, the transition to that future must be inclusive.