Cash at the Crossroads?

Posted on: 21/03/2020

As I write this, the world is in the grips of the coronavirus.

Thousands of people have died and, tragically, many more deaths seem inevitable.

Those who work in health care are under huge strain, as are the facilities in which they carry out their ministering to the ill. 

Tens of millions are unable to work, many of whom are effectively confined to their homes.

Places of education have been closed, with students unable to complete their courses in the normal way.

Most places of entertainment and leisure are shut for the duration - and no one really has any idea of how long that will be.

Here in the UK, food shops and pharmacies remain open, but there has been an explosion of online purchasing, with massive numbers of extra deliveries being made. 

Every day, articles appear, raising erroneous fears about the role physical cash might have in spreading the dreaded virus.

Against this backdrop, it is hardly surprising that cash use for payments is falling dramatically. Even those who have not succumbed to the scaremongering will find it difficult to get and use cash.

How do you get to an ATM, post office or bank branch if you are avoiding public places?

And even if you have cash - there are some stories of sensible people having built up small stockpiles at home - it is impossible to pay for most internet shopping using cash.

So cash use is going to fall dramatically in the next 12 months. This will render the current main distribution channel - ATMs -  more expensive to operate and probably drive out of business some of the operators.

However, many - including, perhaps oddly, the Swedish government - are convinced that, however far cash usage falls, its availability is required both to promote financial inclusion and to provide a safety net when the inevitable digital outages occur.

Focusing on the UK, a number of important questions therefore have to be answered in the next few months.

Firstly, how can cash distribution be streamlined and modernised to ensure that, after the pandemic has run its course, those who need and want cash can have their requirements met at a realistic cost?

Secondly, how will the costs of making cash conveniently available to the public be met, from 2021 onwards?

Thirdly, what legal protections are required to ensure access to and the acceptance of cash are safeguarded for the foreseeable future?

My own view is that cash use for payments will fall to 20% or less by value in 2021. At that level, the current ATM network, which includes 45,000 free-to-use ATMs, will not be viable.

Fewer ATMs will need to be employed, more precisely targeted to meet the realistic cash requirements of the public around the UK.

The ATMs and similar machines which are deployed will increasingly need to allow for local deposit and recycling of cash, both banknotes and coins.

To support the reduced ATM network, we will need to see much more extensive use of Cash Back, with local businesses promoting the service to the public in their communities. In addition, it will need to be considered urgently if Cash Back can be modified to include Cash Deposit, so that excess cash held by the public and businesses can be recycled locally. If this type of cash deposit facility is made available, it may take some pressure off having to increase the functionality of ATMs.

The remaining bank branches and Post Offices will, of course, have a role to play in cash distribution in 2021 and beyond, but it has to be anticipated that the current pandemic will hasten the demise of both. There may, however, be new solutions to providing local staffed financial services touchpoints.

On the subject of new solutions, it will be interesting to see if any of the innovations piloted this year under a scheme funded by UK Finance gain traction. It is anticipated that 5 to 10 pilots will be run. Some or all of them may turn out to be viable,cost effective conduits for cash in the future. 

So cash is definitely at the crossroads. Accelerated decline as a payment method is almost inevitable. Those who cherish choice need to be forward thinking, prepared to embrace innovations that ensure cash can still be on the Payment Choice menu. As ATMs inevitably lose some market share,such innovations will be of increasing importance.

Work done in 2020 can ensure that the crossroads do not lead to a dead-end for cash in 2021.

I am delighted to be heavily engaged in that work.


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