Chris Hemsley's speech at Which?'s Cash Summit - 12 June 2019

Good afternoon and thank you for inviting me to speak to you all today on this important subject, and the role that the Payment Systems Regulator will play in protecting everyone’s ability to choose to use cash, for so long as they want to.

 

This afternoon I am going to focus on three particular aspects of our work: 

But I would like to start with a few observations about where we – as a society – are in terms of cash use.

 

In one form or another, cash has been an important way for people to pay for things for centuries. But, over the last few years, we’ve seen people choose to pay for things in different ways – whether by cards or, more recently, digital payments mobile phones and even watches. This is prompting a debate about the role of cash and raises important policy issues – for regulators, government and society more generally. 

 

It has also prompted me to consider my own use of cash over the years.

 

I used to take out my weekly budget in cash, and that had to see me through the week. But, over time, my use of cards and internet banking has grown. And I can now go days without using cash – relying on my mobile phone to allow me to get around London, buy lunch and other incidental purchases.

 

But I still carry cash, and use an ATM most weeks. When I go somewhere new I rely on the reassurance that holding cash brings, while for some types of payments – to school fayres, sports clubs and collections at work – cash is still king.

 

And my own experience resonates with what we see across the UK. Yes, cash use is declining – more payments are being made by debit card than by cash, and there is a striking growth of contactless payments. 

 

But our own research shows that 80% of people have used cash in the last week. So, while many of us are choosing to use less cash, and an increasing majority prefer to use other methods, it remains an important part of most of our lives. And, when it comes to where we get that cash. The answer is pretty straight-forward: for the vast majority it is a free-to-use cash machine. UK Finance figures show that nearly 80% of cash acquired by businesses and consumers was through an ATM. 

 

And the UK is better served by those cash machines than it has been in the past. We have more ATMs now than 10 years ago, and more of them are Free-to-Use. But in the last couple of years we have seen this increase in free-to-use ATMs stall and now start to fall. This follows the general reduction in the use of cash, as many of us make greater use of electronic payments. But this reduction in the use of cash is unlikely to be uniform, and shines a light on the fact that some communities – people and businesses – rely on cash, but find it difficult to access it easily. 

 

This often conjures up images of remote rural locations. But the truth is that these access issues can be in both rural and urban areas. Indeed, recent research from the University of Bristol has highlighted that challenges exist in parts of our cities – particularly where there are higher levels of social deprivation. 

 

So we need to be careful to understand the needs of people and businesses – particularly the vulnerable, wherever they live.

 

And with declining use of cash, LINK is taking difficult decisions to reduce the total cost of the network of free-to-use ATMs. While reduced withdrawals from ATMs is adding to the commercial pressure to switch some of the free-to-use machines to ones that charge. Businesses are also adapting. With fewer of us using cash, some are finding that it makes sense to go cashless – it can avoid the costs, time and trouble of having to bank their takings. While at present this might only be an emerging trend in parts of our cities, larger retailers such as Sainsburys are also experimenting to see how customers react to not being able to easily pay with cash, with its ‘till free’ trial store. 

 

So, while the growth of electronic payments and innovation brings benefits to many of us, in terms of convenience and new tools to manage our money, we all need to be mindful that it also risks leaving others behind.

 

This is why, in this year’s annual plan, we made cash access a particular focus of our work. And we committed to continue our work to understand what changes might be needed to protect people’s access to cash, as society moves towards greater use of digital payments and cash has a smaller role. 

 

We see it as our job to ensure that everyone has a good choice of how they can pay; so that they can play a full part in society. An important part of that is making sure people are not left behind or do not have good access to cash for as long as they want it.

 

It is relatively easy to describe that in general terms.

 

But, turning that into a series of practical changes that work coherently together is more of a challenge. This is where the PSR is committed to support action on a number of different fronts. 

 

First, action is needed across the different ways cash is accessed – be it ATMs, cashback, bank branches and the post office. But cash acceptance is also key to ensuring you can spend your money when you have it. So we also need to think about the costs of accepting cash and depositing it with banks.

 

Second, action is needed across different time periods. We need action now to protect free access to cash from ATMs – and our regulation of LINK is a key part of this. But looking ahead, we also want to see new ideas to emerge to improve the provision of cash, as usage declines. And while we do this, we need to all be working towards a coherent end-point.

 

And, third, action is needed from all of us with responsibility for aspects of the cash system. Here, the Bank of England has already announced its work to bring down the costs of distributing cash. Meanwhile, we are working closely with the FCA to take a joined-up approach across cash access and the costs of accepting cash which are faced by SMEs. 

 

We also want industry participants to act – LINK on protecting access to ATMs, of course – but we also want to see banks and other parties finding ways to meet their customers’ needs. With this in mind, today’s announcement by the banks and UK Finance is encouraging. We are pleased to see they are keen to play their part and to explore how industry could secure the right level of free access to cash.

 

Coordination is, of course, needed. And this is now supported by the steering group established by the UK government, which brings together the work of government, the Bank of England, the FCA and the PSR.  For our part, we have also set out our high-level approach to these issues on our website.

 

Having emphasised the importance of work across a number of fronts. I would like to focus on three of them, to highlight progress and the issues we still need to address.

 

Holding Link To Its Commitments On Free-To-Use ATMs

 

First, the immediate challenge – protecting the current availability of free-to-use ATMs. Now while there are gaps in provision, we start from a relatively good place. So the first priority is ensuring that the current geographic spread of ATMs is protected. Not the whole solution, but a key step as we work towards the future.

 

This is why we used our powers to issue a direction to ensure that LINK met its commitment to protecting existing free-to-use ATMs. This was an important step by LINK, that acts to protect free to use ATMs that are more than 1km away from a suitable alternative. We continue to monitor LINK’s progress and want to understand what experience tells us about whether further improvements can be made. 

 

Now, looking slightly further ahead – but still with ATMs – is more fundamental change needed? LINK has recently increased the payments made to isolated ATMs with particularly low volumes of transactions. But we are interested to consider whether further action is needed in terms of how payments are made to those who provide free-to-use ATMs – the structure of the so-called LINK interchange fee.

 

We have all walked down high streets with lots of free-to-use ATMs. Indeed, there are more than 25 locations within half a mile of here where you can access cash for free. But we also know of locations with few, if any, free-to-use machines. The problem is that when I take cash out of one of those nearby machines, the payment to the ATM provider will typically be the same as for one of those remote, higher cost and lower volume locations. 

 

We think that this might be one part of the longer-term solution. Put simply, the UK has a lot of ATMs but they aren’t necessarily in the right places – and what matters in terms of access to cash is more likely to be the number of areas that are well-served rather than  simply the number of ATMs. 

 

So we have published a paper asking for your views. It considers whether the way providers are paid when ATMs are used should change – to spread out the machines we have while cash use reduces.

 

Thinking beyond these changes, what else might be part of the solution? 

 

A strong contender is greater use of cashback. 

 

Cashback has the benefit of being relatively low-cost to deploy, and could also provide retailers with a source of income and a way to reduce their need to bank their takings. So, in some communities, it could unlock lower-cost cash recycling. And by reducing the costs of cash to retailers, this could play a role in encouraging continued cash acceptance.

 

And this is also where deposit-taking ATMs might play a role, by maintaining a good geographic spread of places where cash can be deposited, while also keeping these costs down. And if the costs of accepting cash are low, more businesses will accept cash for so long as people want to use it.

 

Now, these steps may not be the whole solution, but – alongside a reformed ATM estate – could support access and acceptance.

 

But then where do we go? What changes might support a longer-term, sustainable cash model?

 

In short – I don’t yet know. 

 

More work is needed to understand how the various reforms and innovations fit together. And, of course, the future is hard to predict.

 

But I do know two things that the PSR will be particularly focusing on – the role that competition and innovation play in protecting people’s access to cash. That is not competition or innovation for the sake of it, but because it can improve outcomes.

 

If I highlight two examples. 

 

First, innovation will play an important role in both finding ways to provide access to cash for those that need it, and to see how technology can meet the needs that – today – only cash really satisfies. We are starting to see trials of these new ideas – such as the Big Issue working with iZettle so that their vendors can accept electronic payments. Or between SumUp and the Church of England.

 

Second, on competition, we need to avoid assuming that as cash use reduces we need to create monopolies to realise efficiency savings. Now, consolidation in some of the infrastructure underpinning the cash system has potential to reduce costs. And the emergence of shared banking centres – such as that being piloted in Birmingham – offer an interesting, potentially competitive solution.

 

But we need to take care when thinking about the longer-term model, to avoid an inadvertent drift towards monopoly provision. In my experience, monopolies are rarely good at passing cost savings to consumers. Nor are they usually the best way to promote innovation. If we do not design competition into the longer-term model we will also bake-in the need for detailed regulation, that builds in more complexity and cost. 

 

So, how to navigate our way forward. Two things strike me as important.

 

First, we need to look to evidence of what people and businesses want and need. With this in mind, we will shortly be publishing the results of our recent research

 

Second, we need to work together. Between regulators and government. Industry and consumer groups. Collaboration and effective dialogue will be key to finding the best solutions and then implementing them in a way that works for people and businesses.

 

The very fact that we are all here today, demonstrates both the importance of these issues and also the willingness on the part of all of us to take action.

 

And, while there is no silver bullet – no instant fix – there are a good range of options that could move us towards a sustainable, coherent cash system for the future.

 

The PSR will be playing its part – both in the near-term as we take steps to protect access to free-to-use ATMs, and in supporting coordinated action the will deliver a cash system that really does work for everyone over the longer-term.

 

Thank you.