/ Money

Reports of cash’s demise are greatly exaggerated

As we host a major cash summit, drawing together industry giants and experts, the Economic Secretary to the Treasury explains how and why cash is being protected.

This is a guest post by John Glen MP. All views expressed are John’s own and not necessarily shared by Which?.

When was the last time you paid for something costing more than a few pounds in cash? Ten years ago, cash accounted for more than three fifths of all payments in this country – today it’s less than three in ten. 

But while cash may not be king for much longer, reports of its demise are greatly exaggerated. From budgeting to contingency, respondents to our Call for Evidence noted several reasons why notes and coins still have an important part to play in our economy.

We want the freedom to pay. Our way.

Perhaps most compelling of all is financial inclusion. For many, including vulnerable people, the elderly, and those living in rural areas, cash can be a lifeline; and some smaller independent businesses believe they cannot afford the costs associated with contactless payments.

Catering for everyone in society

Technology has transformed banking for millions of people, making it easier and quicker to carry out financial transactions and pay for services.

This has huge benefits, but I also recognise that our financial system still needs to cater for everyone in society. We don’t want to hold back the pace of technology – but it mustn’t come at the expense of choice.

Hence, there will be no changes to our current system of notes and coins. Cash will remain available for those who need it, when they need it.

Nevertheless, as internet shopping and cashless payment becomes more widespread, we need to ensure that individuals and businesses can continue to manage their money in their local community in a way that’s convenient. 

In 2015, we established the Payment Systems Regulator to help strike the right balance between competition and innovation on the one hand and protecting the interests of consumers on the other.

And through the creation of the Joint Authorities Cash Strategy Group we are acting to ensure that regulation fully considers the end-to-end cash system in light of changing trends and preferences of consumers and businesses.

The Payment Systems Regulator is already examining what affects the distribution of ATMs across the country, and I welcome UK Finance’s announcement that they too intend to explore key issues around access to cash.

Considering customers’ needs

Banks and building societies must play their part, whether it’s creating shared banking hubs so that businesses can deposit large amounts of cash if they need to, or working to boost the number of retailers that offer cashback to shoppers.

Likewise, there’s a special obligation on developers to consider the needs of all customers as they design new banking products and forms of digital payment. It’s good to see companies like Square already working to understand how they can support the needs of smaller retailers. 

No one should be locked out of the benefits that this technology brings.

Finally, we have established the Digital Skills Partnership to bring the public, private and voluntary sectors together, which will help people to manage their money in the digital age.

From next year all adults will be entitled to undertake fully-funded digital skills training, just as they can for adult literacy and numeracy.

So, in sum, action is underway on many fronts to ensure that a range of choices exist to serve the diverse needs in our society and the dynamic nature of our economy.

Industry, government and civil society all have a role to play, and it’s in our interests to work together. 

After all, access to cash is not an end in itself: it’s a means to a stronger, more inclusive and more successful economy.

This was a guest post by John Glen MP. All views expressed were John’s own and not necessarily shared by Which?.

We think everyone should have the freedom to pay in a way that suits them, but we’re concerned that cash is at risk.

Do you think cash should be protected? If so, use our tool to tweet about why, and support our #Freedom2Pay campaign.


Even in Sweden – supposedly leading the way to a cashless society – cash is widely used for smaller purchases. As the UK is not withdrawing cash, we will continue to use it where appropriate or convenient so I see no demise, just a continuing reduction in use (like cheques).

We can greatly improve access to cash by using businesses and retailers that rely on cash – just arrange for them to dispense it through a debit card transaction. There is no fundamental reason why only ATMs are the main source. We just need to keep open minds, This would give access to cash to a far greater number of people who have never been close to a post office, bank branch or ATM. Let’s think about the whole community, not just preserve the convenience of a part of the population. this has been proposed in previous Convos and in the “Access to cash” report – March 2019.

Glad to see some constructive thinking on this.

Malcolm, I agree with you that cashback on debit card purchases is a great way to provide cash to those who want it. It also reduces the amount of cash that a business needs to transport to the bank, which reduces their costs (through reduced frequency of trips). This is possible where the cost of accepting a debit card is a fixed fee per transaction, but the fees for accepting debit cards have been moving recently towards a percentage model, as has always been the case for credit cards. This percentage model reduces the financial viability of offering cashback, because the business is paying a fee to dispense cash to customers.

As with ATMs this fee could be paid by the banks. However I am not sure why the convenience of obtaining cash should always be regarded as “free by right”. I can have free access to cash by withdrawing enough and keeping it under the bed – available 24/7.

Expecting someone else to “look after” it for us for free, and then dispense it whenever I want it through a commercial outlet, seems a bit one-sided. A 10p or 20p debit card charge is surely something any reasonable customer would pay for the convenience of withdrawing cash locally – saving them a car or bus journey to an ATM.

I agree with you, Malcolm. Those who want to use cash and cheques should pay the costs of doing so. They shouldn’t be subsidised by the rest of us who transact electronically.

Except that cash machines were originally introduced by banks to save them money. No one forced the banks to make them available; they could simply have retained their branches, but, instead, they chose the avenue that would mean greater cash returns for themselves.

We tend to forget that the banks are looking after our money; since 2008 they’ve paid us nothing for looking after it and being able to invest it on their behalf. In the good times, the banks make a lot by investing our money; rarely do we – the customer – see any real returns. The reduction in ATMs is part of the same process; the banks want more money for themselves.

I don’t understand the comment that “some smaller independent businesses believe they cannot afford the costs associated with contactless payments“. The most that a small business needs to pay to accept all card types (even including Amex) is a flat 1.69% via SumUp.co.uk with no minimum fee and no monthly fees. There are plenty of other options, some much cheaper than 1.69%.

The cost of transporting cash to the bank is very often much more than 1.69%, so if these small businesses can’t afford to accept cards at 1.69%, how can they afford to accept cash with an even greater cost? Unless of course accepting cash is in order to evade VAT and other taxes.

The history of the ATM introduction is interesting. For a start the idea of out-of-hours cash distribution developed from the bankers’ needs in Japan, Sweden, the United Kingdom, and the United States. Note it was the ‘bankers’ needs’, not the customers’.

The Japanese device was called “Computer Loan Machine” and supplied cash as a three-month loan at 5% p.a. after inserting a credit card. The device was operational in 1966. In the UK the first cash machine was put into use by Barclays Bank in its Enfield Town branch in North London, United Kingdom, on 27 June 1967.

Adrian Ashfield invented the basic idea of a card combining the key and user’s identity in February 1962. This was granted UK Patent 959,713 for “Access Controller” in June 1964 and assigned to W. S. Atkins & Partners who employed Ashfield. The first modern ATM was an IBM 2984 and came into use at Lloyds Bank, High Street, Brentwood, Essex, the UK in December 1972. The IBM 2984 was designed at the request of Lloyds Bank. The 2984 Cash Issuing Terminal was the first true ATM, similar in function to today’s machines and named by Lloyds Bank: Cashpoint.

Now when we discuss the immense costs of building and running ATMs it’s worth looking at some facts. The vast majority of ATMs worldwide use a Microsoft Windows operating system, primarily Windows XP Professional or Windows XP Embedded. So not a huge cost for the software, then. In fact, business owners often leased ATMs from service providers. However, based on the economies of scale, the price of equipment has dropped to the point where many business owners are simply paying for ATMs using a credit card.

So even the machines don’t cost that much.

And we should remember the banks use the existence of ATMs to justify their wholesale closures of branches. There’s an argument that suggests many who currently bank with one bank did so because they were seduced by the bank in question many years ago. A big selling point was the ubiquity of their branches.

Now, they no longer exist and they’re also trying to remove the cash machines. Why? Because they want more money for themselves.

When many people have been using ATMs since the 1970s it is not sensible to go back to manual dispensing of cash. Where banks have closed, ATMs could have been retained in the area, perhaps sited at Post Offices and village halls, and there are plenty of supermarkets that don’t have a single ATM.

It is perfectly sensible to organise the distribution of cash in other ways, in addition to ATMs, when it will enable the many people to obtain it who, currently, do not have a convenient bank, post office or ATM. We do need to think about a progressive approach that will help as many as possible, rather than trying to only preserve the present one that limits accessibility.

The Access to Cash review produced a report in March 2019 and has some interesting views and information https://www.accesstocash.org.uk/

Earlier this week I called at a local petrol station and was offered cash back when paying by debit card. Most of these establishments are now subsidiaries of large supermarkets which are currently cashing in on the almost frequent flow of custom from vehicle owners and are now in a position to pay the fixed fee for debit card transactions.

I don’t think I owe my bank any favours for looking after my savings when you consider the paltry amount of interest they pay me in return for having free rein to invest and capitalise on it.

Banks are constantly applying pressure on their customers to bank online and there is no question this is a more efficient way to run a business. Unfortunately this still involves a certain amount of risk to ordinary customers whose pensions or life savings remain open to scammers, although I do accept banks are now addressing the issue of compensation for its victims, there still exists a question of blame as to who is responsible for the loss.

I recently received an e-mail purporting to come from my bank offering access to a new app which would inform me of all pending debit card transactions before they are actually transferred into the payees account, but the service is obviously only available to online customers.

Until banks are in a position to guarantee my savings are 100% safe I remain an unwilling patron to succumb to their tempting offers. The old adage ‘better safe than sorry’ still carries a considerable amount of clout in a capitalist society where money seems to dominate the lives and minds of its people.

I would however welcome the demise of loose copper coins which seem to add considerable weight to my purse and which usually end up in a swag bag awaiting transportation to a local charity.

We seem to have a rather curious view of banks. Instead of giving us “free” banking, were they to pay a market interest rate on our money that they hold – say 3% – and our average balance is £500, we’d make £15 a year. They would then charge for the services that they provide – handling cheques in and out, incoming payments, our regular direct debit payments for council tax, insurance, subscriptions….. action our instructions to make online payments at any time of the day and night, message us when a due payment might take us overdrawn, maintain the existing branches and staff, provide and service ATMs, provide a debit card system, give us monthly statements……………… Would £15 a year cover it?

Maybe we should be given a market interest rate but then pay for each of the services we use and transactions we make.

I’m not sure it’s that simple. Banks invest in a variety of ways, and can make significant interest in the form of buying and selling with the money we’ve loaned to them, far in excess of the measly interest rates.

I don’t think free banking will survive for long once banks are no longer allowed to charge punitive interest rates on overdrafts. I have long supported paying an appropriate amount for the services we use and interest on credit balances.

I expect any lost income may well be made up from higher interest charges on loans, overdrafts and mortgages. As far as I know the main financial change is that they are only being required to drop the daily charge for overdrafts.

And if your balance is considerably more does that mean this compensates the ‘average’ £500? Low interest rates have enabled the banks to recover from the mess they created in 2007/8 through indiscriminate lending and investment practices, unfortunately at the expense of the saver.

Excellent point.

According to the report, 32% of the UK’s workers have less than £500 in savings and 41% have less than £1,000.

Those with considerably more and who are savvy will place surplus cash in an account that earns some interest.

As well as poor lending practices we were also into poor borrowing practices, believing in an ever-spiralling housing market, taking out loans we could not afford (if the spiral reversed), using far too much credit, all encouraged ( certainly not discouraged) by the government. It was not one-sided. Bubbles have a habit of bursting.

The whole point being the amount of interest paid by the banks Malcolm.

Low interest rates are, currently, the norm, not just at the banks. I can borrow, from my bank, for a house and pay just 1.74%, or take out as personal loan at 3%. The banks pay interest to attract the money they need; while the money markets provide for their needs at low rates they do not need to pay depositors higher interest.

Low interest rates also keep the economy buoyant and the lucrative returns on VAT the Treasury in pocket.

the banks want to charge for every service they provide, they use are money to make vast profits and when they loose are money on bad dealings they expect us to bail them out. most banks owe us billions so how can they claim they are making profits and pay the directors millions when they are still in debt. and pay us the public less than 1%

You certainly need cash/small change, if you’re going to the British seaside! Many tiny seafront stalls only take cash for your ice-creams etc. And amusement arcades etc always require small change/silver. Don’t think you’d want to miss out on an ice-cream on a boiling hot day cos you only have cards with you!