Is cash king?

Examining the importance of cash for local communities

Author: Dominic Leigh   |   23/05/2016

Localis has published a new report Is cash king? Examining the importance of cash for local economies and communities, sponsored by Cardtronics.

Cash has been a constant in human interaction for many centuries, so it can be hard to believe that its fundamental role in all our lives might be under threat. But recent years have seen an accelerated drive towards the use of new payment methods that could presage the end of the millennia-old dominance of cash and potentially lead to a so-called ‘cashless society.’

This research, conducted by Localis on behalf of Cardtronics, provides a stock check to assess the extent to which cash remains important for local businesses and communities and how far new cashless technologies have taken root in the UK, and examines the options available to policymakers if the long-term availability of cash comes under threat.

As part of our research Localis has surveyed over 100 key local government stakeholders – including chief executives, leaders, cabinet members and chief finance officers, and the results show that cash remains vital for local businesses and communities:

• 80 percent of respondents said that cash was important or very important to the economic vitality of their local area.
• A third said that the reduction in the number of high street bank branches has created cash accessibility problems
• Over a quarter of respondents said that local businesses had raised concerns about lack of access to cash locally with them.
• Such concerns were linked to the closure of bank branches in 85 percent of cases; high transaction costs for non-cash payments and the pressure to offer more non-cash payment methods in a half of cases and a reduction in the number of ATMs in a third.
• Three quarters of respondents said that local economic growth would suffer if access to cash was reduced in their area.

These findings underline the continued importance of cash, which is still used for the majority of retail payments with a half of retailers relying heavily on cash payments. There is also a significant demand for cash from the 1.6 million people in the UK who, according to the Payments Council, rely disproportionately on cash. This includes over a million people who are ‘unbanked’ and tend to come from disadvantaged backgrounds, as well as older people.

Nevertheless, a range of new technologies pose a threat to their ability to access cash. With the growth in the use of online banking, the rate of bank branch closures reached 650 – a dozen per week – in 2015. This trend has particularly hit rural communities, with historic towns such as Glastonbury left without a single branch.

Taking trends towards new forms of payment into account, the Payments Council projects that the total volume of cash payments in the UK will fall by a quarter from 18 billion in 2015 to 13 billion in 2023. However, the value of cash payments is expected to remain stable, only decreasing by 5 percent from £257 billion in 2015 to £245 billion in 2024. These statistics tally with evidence from the Bank of England, which suggested that demand for cash is likely to remain substantial for the foreseeable future and the absolute amount of cash used for transactions is likely to remain resilient.

Despite this optimistic assessment, things can change swiftly. The report examines the example of Sweden, which shows how quickly a country can move towards a cashless society, with the value of cash in circulation having declined by 17 percent from 2010-2014 in that country. In light of this, the report recommends that policymakers should consider the following options if cash accessibility becomes a bigger problem in the future:

• The Bank of England could encourage banks to work with relevant local partners to leave a “cash availability legacy” when they close a branch, in the form of a subsidised ATM, support for the maintenance of banking services in community or private sector premises, or the roll out of more ‘Smart ATMs’ that allow people to access other banking services.
• The Government could provide financial support, for example using receipts from the existing bank levy, to support the work that independent ATM operators are already doing to install free-to-use cash points in remote and deprived areas.
• Local authorities are given the power to use a one-off levy on the biggest out of town retailers (so-called ‘Tesco tax’) to generate money to invest in high street infrastructure, which could fund the installation of ATMs to support access to cash.
• Councils work with the ATM industry to assess how community hubs, such as leisure centres, libraries, town halls and one-stop shops, could be used as locations for ATMs, if there is sufficient footfall to make this commercially viable.

For more information on this publication, please contact jack.airey@localis.org.uk