Access to cash across the UK is more than just a numbers game. While analysis based on the number of bank branches and ATMs is significant it cannot be the only measure considered by industry and policy-makers.
The real experience of consumers will depend on other important factors. Community needs for cash may differ according to the different socio-economic make-up of local populations, travel and consumption patterns, and access to alternative payments services.
A new research project by the University of Bristol, the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) is aiming to map this complex reality across the UK and enlighten future policy options. For the FCA and PSR, this builds on our initial work to create a first interactive access to cash dashboard during the Covid crisis, as described in a recent Insight article.
Use of cash – where are we now?
Cash use has been declining steadily for some years as people switch to alternative electronic or digital payments. In 2017, according to UK Finance, debit cards overtook cash as the most frequently-used payment method in the UK. The figure below shows the year-on-year decline in ATM transactions, from an average of around 60 million transactions per week in 2017 to just over 50 million in 2019 – a 16% decline over two years.
This downward trend of cash use seems likely to continue in the future. However, the exact path is uncertain, not least because of the coronavirus pandemic. According to figures from LINK, cash withdrawals fell markedly during the first weeks of lockdown in response to Covid-19 (see figure below). But they have since recovered somewhat (albeit not to previous levels), which could suggest some resilience of cash use, at least among parts of the population.
Source: Link (2020).
Note: These figures include balance enquiries and rejected transactions made through the LINK network, but do not include transactions made by customers at their own banks’ or building societies’ ATMs
The reasons why some people use cash rather than other forms of payment are manifold. Demand for cash reflects its acceptability as a medium of exchange (i.e. for payments and transactions), its characteristics relative to other forms of payments, as well as its ability to store value, for instance emergency back-up funds or hoarding. Previous research by the Access to Cash Review (ATCR) and the PSR has indicated reasons for the persistence of cash as a medium of exchange. These include an inherent preference for cash transactions among some groups, a lack of access to alternative means of payment, and insufficient access and skills to operate digital payments. In addition, even consumers who predominantly use cards or alternative payment methods can encounter circumstances when they need cash (for instance if a retailer’s card machine is not working).
Amid the decline in cash use, there are a number of practical concerns that require the collective attention of industry and public stakeholders. As aggregate cash usage declines, individual branches and ATMs will continue to close, or convert from free-to-use to pay-to-use in the case of ATMs, if they are no longer economically viable.
In particular, ATMs are dependent on income from cash withdrawals to cover their largely fixed costs. Since January 2018, the reduction of the interchange rate paid to ATM owners for cash withdrawals has also contributed to changes in the viability of ATMs.
The reaction of industry to aggregate declines in cash use could also impact the viability and sustainability of the cash infrastructure more widely. Earlier this year, the Access to Cash Review and LINK issued warnings about the consequences of current trends and that 'without government support, the infrastructure will start to fall apart' within a matter of years. These changes could ultimately have significant implications for the consumers that most depend on cash.
Project and aims
To address these concerns, a joint programme of work between the University of Bristol and the FCA and PSR, in consultation with the steering group consisting of LINK (the funder), UK Finance and the Post Office, is examining the geographical footprint of the UK’s cash infrastructure.
The project combines and builds upon on the expertise gained from previous work published by University of Bristol and the FCA/PSR’s previous analysis on access to cash, including tracking ATM and branch closures during Covid-19.
Its key aim is to explore how community needs for cash may differ. This may be driven by the different socio-economic make-up of local populations, patterns in travel and consumption as well as access to alternative payments.
Taking these factors into account, we aim to assess different measures of access to cash across the UK.
Our approach is to map and analyse data provided by industry partners (banks, building societies, the post office, ATMs, cashback locations and credit unions). There are two interrelated aims.
First, we will trial and test multiple methodologies to measure A2C from different vantage points to consider both where people live and where they access and spend money. The same analysis can also shed light on access to cash deposit facilities for small businesses.
Second, we will analyse how access to cash compares with needs of the different types of communities across the UK. This is a difficult undertaking, as cross-sectional data that measures consumer’ needs for cash access, or harms from loss of access are currently unavailable.
Progress to date
Thus far we have collected data on the different cash access points (bank, building society and Post Office branches, mobile banks and ATMs) and a range of their characteristics. This allows us to generate a pre-Covid-19 baseline dataset for March 2020, similar to the one created for the FCA/PSR Covid dashboard but with more detail available on the characteristics of cash access points. This has strengthened our evidence on the supply-side of the market, and is something that could be added to or collected again over time.
We have used the coordinates, or in some cases postcodes, of all cash access points to create an interactive map for our stakeholder group.
The map is a helpful tool to browse the distribution of different cash access points, and how this varies across the country. As the image below of Chester and its surrounding area shows, city or larger town centre locations tend to have a relative concentration of cash access points, often along high streets. The picture in adjoining rural areas tends to look very different, reflecting population density and many other factors. This highlights the need for our analysis to consider where and how people tend to access cash, and to take into account the characteristics of an area when assessing whether cash access meets local needs.
Location of cash access points for the City of Chester and surrounding villages
Further refinements to this data could enhance this analysis. For example, we are seeking to include the locations of retailers that offer cashback. The availability of cashback at retailers is an additional cash access option in communities that lack traditional access points.
Distribution of cash access points
Using our national dataset of cash access points, we have examined the type of cash access points according to output area classifications created by the ONS.
As shown below, there are indeed differences between area types for different types of cash access points. For example, average consumption and travel patterns likely differ substantially between rural, suburban and inner-city communities.
Distribution of cash access points across the UK
Note: 2011 Output Area classifications taken from ONS ‘pen portraits’.
We will conduct further analysis drawing on existing datasets to develop a broader understanding of factors that might influence A2C. These analyses will focus on a variety of socio-economic indicators - including economic activity, deprivation, median age, student population etc. – as well as ability to travel, commuter routes and internet access.
Understanding change patterns
A further aim of this project is to track changes to cash access points going forward and to map and analyse these at regular intervals. Understanding these trends may allow us to draw scenarios of future changes to cash infrastructure.
Looking at changes in ATM numbers between 2018-2020 we see that there has been a decline in the number of free-to-use (FTU) ATMs. We also see that here are differences across different types of communities, and that growth in pay-to-use (PTU) ATMs in the last two years appears to be concentrated in only some types of community.
However, these declines need to be put into context. The declining number of free-to-use ATMs in some communities may reflect differences in the previous level of free-to-use ATMs in these communities, as well as changes in demand for cash in these areas.
Furthermore, given that rural and suburban communities have access to fewer cash access points in their immediate locale, those that do exist may be vital and protected by LINK’s Financial Inclusion Programme, which may explain some of the difference we see.
Our work in future
The project can provide helpful evidence that industry and policy makers can use to inform A2C in the longer term. It may be used to inform ways to reduce the harm or potential harm associated with lack of access to a free-to-use ATM (FTU ATM) or bank branch for vulnerable communities.
The project will also generate new avenues for research in future. For example, future analysis may seek to understand the relationship between digital and cash payments.
One analytical challenge is where we measure from when determining what access looks like, and what might determine ‘reasonable’ distances for people and smaller businesses to access or deposit cash. For example, should access to cash be measured relative to neighbourhoods or census areas (where people live), or should we measure the cash access of high streets, or other concentrations of economic activity (where people spend)?
There is a trade-off between the localised needs for cash, for example for the elderly, or those without access to public or private transport, and the costs of cash infrastructure that are ultimately borne by society. Understanding these trade-offs is complicated, not least because cash is not necessarily consumed where it is accessed and any definition will inevitably involve some element of judgement.
Our next step in the project will be to trial the different methods for analysing access to cash taking into account all of these factors, and insights from this exercise will be shared in a report later this year.