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Shoe retailers have the freedom to choose where to open or close their shops. However, the UK banking sector might lose that same level of liberty. The Treasury is proposing that banks should ensure access to cash services within a three-mile radius for customers residing in rural areas. This proposal highlights the increasing politicization of UK banks, especially considering the recent ousting of NatWest CEO Alison Rose due to disagreements regarding account closures.
The objective behind this proposal is commendable. City Minister Andrew Griffith aims to prevent the digital payment transition from disadvantaging the 5 million individuals who still rely on cash for their transactions, particularly the elderly, vulnerable, and financially disadvantaged.
The payment landscape is rapidly changing, with cash accounting for only 15% of total payments in 2021 compared to 55% a decade ago. This shift has resulted in a decrease in footfall at bank branches and ATMs. The COVID-19 pandemic further accelerated the trend towards contactless transactions. Consequently, ATM withdrawals have declined by 40%.
This decline has rendered the cash storage, transport, and distribution infrastructure, which costs £5 billion annually to maintain, oversized. To cope with this, banks have been closing unprofitable branches and reducing the number of ATMs.
It’s important to note that the government’s intervention is not intended to force banks to open more access points, but rather to maintain the current level of accessibility. Currently, 95% of the population resides within three miles of cash facilities.
Banks have the opportunity to share costs by collaborating to establish “banking hubs” in multi-bank outlets, which would come into operation when the last branch in an area closes. While seven such hubs are already in operation, an additional 70 are being planned.
This policy intervention serves as a temporary solution. The use of cash will continue to decline, eventually making even shared infrastructure costly. As a result, further streamlining will be necessary. Banks should prioritize making digital technology more user-friendly for all individuals.
Meanwhile, the Treasury emphasizes that banks have a universal service obligation, similar to Royal Mail’s responsibility to deliver letters.
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