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Cash use up for first time in a decade as new access rules proposed

Cash use up for first time in a decade as new access rules proposed
Paloma Kubiak
Written By:
Paloma Kubiak

For the first time in a decade, cash use has grown, but in the ever-increasing digital world, the financial regulator has set out proposals to ensure individuals and businesses continue to have access to cash.

Cash use has risen to one in five (19%) of all transactions, up from 15% in 2021, according to the British Retail Consortium’s Payments Survey 2023.

It said this is due to many households using cash to budget more carefully during the cost-of-living crisis, as well as a “natural return” to cash use following the preferred contactless payments method during the pandemic.

The BRC also recorded a rise in spend using cash – up from 8% in 2021 to 11%, adding the increase in cash usage, both by transaction and spend numbers “is welcome”.

The figures come as the city watchdog, the Financial Conduct Authority (FCA) has proposed new rules to maintain access to cash for personal and business customers in an “increasingly digital world”.

As part of the proposals, designated banks and building societies will need to assess and plug gaps in local cash provision after considering demographics and transport.

Where gaps are found, they’ll need to “act to address these needs” such as delivering reasonable additional cash services.

Further, they’ll need to ensure they do not close cash facilities, including bank branches, until any additional cash services identified are available.

Withdrawal services and bank branch closures

As of Q1 2023, 95.1% of the UK population were within one mile of a free-to-use ATMs or Post Office branches. Meanwhile, 99.7% of the UK population were within three miles.

However, the FCA said the availability of cash access services can impact local communities, economies and high streets, and “so it’s important to meet local needs – which may change over time”.

But as part of the FCA’s new powers – granted by the Financial Services and Markets Act 2023 – they don’t prevent bank branches from closing.

Earlier this week, YourMoney.com revealed that just under 200 bank branches are already set to disappear from high streets in 2024, with a total of 641 branches being flagged for closure in 2023.

The FCA added that “the rules will have an impact where branches are a key local source of cash” and they will “work in harmony with existing guidance on bank branch closures”.

But when it comes to retailers’ acceptance of cash, The FCA said existing law allows businesses to decide whether to accept cash or not – “so the FCA cannot require them to do so”.

‘Millions of people still rely on cash’

Sheldon Mills, executive director of consumers and competition at the FCA, said: “We know that, while there is an increasing shift to digital payments, over three million consumers still rely on cash – particularly people who may be vulnerable – as well as many small businesses. It’s important that we support consumers impacted by recent innovations.

“These proposals set out how banks and building societies will need to assess and plug gaps in local cash provision. This will help manage the pace of change and ensure that people can continue to access cash if they need it.”

The consultation is open until 8 February, with the FCA expecting to finalise the rules by Q3 2024.

Card payments up, as are associated fees

Debit and credit cards accounted for over 85% of all spending, with debit cards used in three out of four transactions.

However, the BRC said the dominance of card payments “has come at a significant cost to retailers”. Retailers spent £1.26bn on card processing fees; this includes a 27% increase in scheme fees and a 7% increase in interchange fees (as percentages of turnover) in 2022.

For shoppers, the average transaction value fell from £24.49 to £22.43 “as consumers shopped around more and made regular, but smaller purchases”, according to the BRC.

Alternative payment methods also saw a rise in popularity in 2022, from 2% to 4.9% of transactions. Methods such as Open Banking and Buy Now, Pay Later (BNPL) are starting to offer some competition to card payments.

Overall, UK retail sales rose 4.3% to £439.5bn in 2022, though the consortium noted this was largely due to rising prices resulting from increased costs throughout the supply chain.