Nilixa Devlukia – Founder, Payments Solved
Alison Donnelly – Director, fscom
The global pandemic has seen a major increase in the rise of digital payments, while cash has declined throughout Europe. However, many consumers still need cash and a seemingly minor change in the Payment Services Regulations 2017 that came into force on 29 June 2021 could have a very welcome impact on the UK’s ability to access cash.
Facilitated by Brexit, legislators have added a new exemption to the regulations that enables the provision of cash at corner shops, supermarkets, cafes, pubs and the like without a purchase.
In 2019, the Access to Cash Review concluded: “that digital payments don’t yet work for everyone and around eight million adults (17% of the population) would struggle to cope in a cashless society”. Cash is still high on the agenda and industry and regulators have been under pressure to facilitate access to cash following the publication of the Access to Cash Review and the establishment, by HM Treasury, of the Joint Authorities Cash Strategy (JACS) group to lead the UK’s strategy. JACS includes the Payment Systems Regulator, the Financial Conduct Authority and the Bank of England.
“If we want to protect cash, we need to innovate, not preserve the past in aspic. Why can’t we get cash at local shops, through cashback, as well as at ATMs? Why can’t we support small businesses by letting them deposit their cash in lockers or smart ATMs rather than face the security risks and costs of a weekly trip to their bank branch? There is huge scope for innovation, not just in digital payments but also in cash.”
Why the change in legislation?
The legislative change has been brought about by the government’s acceptance of an amendment to the Financial Services Bill put forward by Lord Holmes of Richmond and is sufficiently broad to enable merchants and other players, such as fintechs, to offer cashback without purchase through the card scheme rails, such as Visa, Mastercard and LINK, and other payment systems without having to become authorised as a payment institution.
The payment services regulatory regime has been cited as one of the barriers to greater access to cash because of the way two of the exemptions, the cashback exemption and the ATM exemption, are drafted. The former required a purchase to be made in order for the provision of cashback to be out of the scope of the regulations while the latter was only available for actual machines meaning that any human intervention (opening the till and handing over cash) resulted in the exemption is unavailable.
In November 2020, LINK and PayPoint launched a pilot to allow consumers to withdraw cash in 13 smaller shops in four communities across the UK without having to make a purchase and without being charged a fee. The service is provided on behalf of the card issuers and if consumers encounter any difficulties they can take their complaint up with the card issuer; as they do with any other difficulty when using their payment card.
Both Mastercard and Visa also launched a scheme to incentivise retailers to offer cashback in areas of the UK where consumers struggle to access cash.
The benefit to consumers of being able to access cash via cashback rather than an ATM is the ability to withdraw specific sums of money rather than being restricted to the denominations of notes dispensed by the ATM. This is helpful for consumers on a tight budget who only have a small amount to withdraw or who only want to take exactly what is needed. For retailers, the schemes in place at present offer financial incentives to offer the service. There are also benefits to small retailers who are equally challenged by the closure of bank branches; cashback without purchase allows the retailer to offer a service and mitigate the challenges of banking cash.
The change in legislation comes into effect just days after Age UK’s call that the cash system should be recognised as an essential piece of infrastructure as utilities, post and broadband are and protected by a universal service obligation.
It is an important step in addressing the government’s commitment to making cash more accessible, and the next challenge will be to make it equally as easy to place cash into the digital system, something which John Glen, the Economic Secretary to the Treasury, confirmed that there will be a consultation on during the summer this year.
Nilixa Devlukia is the founder of Payments Solved and is an experienced regulatory expert and lawyer with over 20 years of experience gained from her time at Barclays, the FCA, the EBA and as Head of Regulatory at the Open Banking Implementation Entity.
Alison Donnelly is a payments regulation specialist, director of the compliance consultancy fscom and former e-money policy subject matter expert at the FCA. She also leads the Emerging Payment Association’s Project Regulator and is a director of the Association of Professional Compliance Consultants.