In an era dominated by digital transactions, the allure of convenience often overshadows the significance of preserving access to cash. Steve Round, Co-founder of SaaScada, delves into the pressing need for banks and financial services firms to re-evaluate their approach amidst the evolving landscape of payments.
The FCA is belatedly embarking on its mission to return life to the UK’s cash deserts. In recent years, there has been a major shift to digital payments, but over 3 million UK consumers still rely on access to cash. The next few months are a critical time for banks and building societies. Under the proposed new rules, financial services (FS) firms will need to reassess the services they provide and plug any gaps in access to cash.
The hidden costs: Understanding the downsides of a cashless society
Digital payments bring unparalleled convenience and increased efficiency to consumers – there is no longer a need to fumble for change or count bills. The shift towards digital also curb the risks associated with theft, loss and forgery. Digital transactions leave behind a data trail that helps in tracing and retrieving funds, which is particularly beneficial when paying taxes and in cases of fraud.
However, the removal of access to cash is fraught with challenges around social inclusivity and security. The most vulnerable groups in our society – low-income individuals and the elderly– regularly rely on cash. The Bank of England found that cash was the first preference method for 27% of 65+ year olds and 28% of those in lower socio-economic groups. These groups cannot afford to be locked out of financial systems by a no-compromise cashless society – and responsibility for keeping these groups on the grid financially falls on the regulator and FS firms. Without decisive action, inequality and existing barriers to financial services will grow, leaving millions financially disconnected.
Another at-risk group is small to medium-sized businesses (SMBs). Cash is essential for the day-to-day running of many small, local businesses. Almost half of UK SMBs still rely heavily on cash and over a third have said they’re not keen on moving to a completely cashless system. These businesses need to be able to serve cash-preferring customers, and simply would not survive if they were forced to turn these customers away. SMBs deserve to receive quality support so that they – and the communities they are part of – can thrive.
At the other end of the scale, relying solely on digital payments exposes businesses and citizens to the vulnerabilities of technology such as cyberattacks, network outages and technical glitches. A technical glitch can bring a bank to its knees – just look at HSBC in 2023. Glitches and security breaches can temporarily take online banking services offline and even drive fraud, allowing customers to withdraw money they don’t have. Just imagine if our entire society went cashless. One glitch would disrupt the entire financial ecosystem! Therefore, as digital payment methods continue to gain traction, banks and building societies must step up to ensure that the needs of local communities and economies are met.
Securing tomorrow’s transactions: Practical steps to safeguard access to cash
With more than half of all payments in the UK being made with debit cards, the time to safeguard access to cash is now. However, to ensure the financial landscape remains inclusive, a multi-faceted approach is required.
Banks and building societies need to understand exactly who still relies on cash and ensure that those customers receive effective support. This is vital now that Consumer Duty regulations require FS firms to provide every consumer – even those who only use cash – products that meet real needs. But, without a 360-degree view of consumer spending, this is impossible. FS firms need granular insights into each customer account to identify who still depends on cash and ensure they are catered for, otherwise they risk non-compliance fines and reputational damage. The challenge is that many banks do not have the data on which customers use cash as the main payment method.
One solution is to place banking facilities in non-banking environments in the community. Take Visa, which as part of a scheme with its partner banks, incentivised retailers to offer cashback in regions where consumers struggled to access cash. While many solutions could work, if FS firms are to be effective, they must prioritise speed. Local bank branches have closed at a rapid rate in the UK, and FS firms need to ensure these closures do not negatively affect the service they provide. The FCA’s new powers may not prevent bank branches from closing but will have an impact where branches are a key local source of cash.
Banks also have a responsibility to solve some of the challenges that hold people back from going cashless. Financial education is crucial to helping individuals embrace the digital era with confidence. Santander is leading by example, running education programmes in the countries they operate and improving the financial literacy of 2.7 million people in 2022 alone. In addition to this, FS firms must put the wealth of data they hold to good use to understand customer needs and design feature-rich bank accounts that cater for everyone in society.
Why the fight for financial inclusion matters
Everyone has the right to spend and bank how they wish. If customers want to take advantage of facial recognition and digital wallets, then a whole raft of modern technologies are ready. But cash-preferring customers who seek physical interaction and the 50% of SMBs who rely heavily on cash matter too.
Embracing the benefits of digital transactions while upholding inclusivity and security for all is the true hallmark of a progressive financial future. As innovation in technology continues to shape the world of payments, FS firms must ensure that they do not abandon large segments of their customer base for whom access to cash remains essential.
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