I was looking to draft a blog about the future of cash, and then the government launched a call for evidence on … the future of cash, so here are my thoughts which now kind of double as a framework for how we will respond to this consultation. The debate about the future of cash in the UK economy and specifically in convenience stores touches on lots of the issues that I find really interesting about our sector and how we manage change. To me it’s a classic example of how averages and major trends can mask some of the counter-currents and local impacts that are really important, and our sector has a crucial role to play in serving the UK’s changing relationship with cash. I’ll try to explain what I mean.
The big picture is that cash usage is in decline. Online trade, the ease of chip’n’pin and contactless transactions, and consumer appetite for credit are some of the factors that have meant that a growing proportion of transactions are now by credit or debit card. This has been exacerbated over the Covid pandemic because there’s been a growth in online retail penetration, and more physical retail and hospitality outlets have started to take or even actively prefer card payments. Here’s the first misconception around this change in behaviour: that a downward facing line on a graph will eventually reach zero. We are still generations away from that happening with cash, if it ever happens at all. How low cash usage will get over what timescale is open to debate by people more expert than me, but it’s fundamental to understand that cash is going to be a part of the economy for a very long time.
Thankfully, that’s recognised by public bodies as well as businesses who are part of the cash system. A report last year by Natalie Ceeney talked about how the way we manage cash can become more efficient, for example through banks sharing a common system for storing and distributing cash. That report, and a great deal of debate involving LINK, which regulates the ATM network, and other stakeholders in this market has also looked at access to cash right down to high street and neighbourhood level, trying to address the question: if there’s less cash being withdrawn, how do we find a balance between a sustainable network of ATMs and other points of access to cash?
This is a crucial debate, and one that really matters to convenience stores, because we have for some time played a key role in making cash available, usually through hosting ATMs placed by third party operators. There’s real frustration about banks having reduced their own branch networks and at the same time having, through LINK, reduced the amount they are prepared to pay ATM operators, which inevitably passes straight to the terms offered to shops to host ATMs meaning many of those machines now charge consumers. That’s particularly damaging when other ATMs remain free to use, leading to footfall migrating there and away from the retailer who through no fault of their own can no longer offer their customers free access to their money. The economics of operating ATMs are dynamic, especially over the past few months, which is why there’s an independent analysis of costs to arrive at the right interchange fee rates to fund the network … except that analysis is now being ignored leaving much of the free to use network unviable. There is some logic to LINK differentiating interchange fee rates for ATMs in locations that particularly need it, but the variable rates format hasn’t yet filtered through to help retailers who have lost their free to use machines.
We’re continuing to make the case for fair interchange fees that allow retailers to be part of this market, but we also have to think about alternatives and how we can adapt to a changing world where cash is not used as widely. Specifically, what role does cashback have to play in the future of cash provision? Retailers survive and thrive when they adapt and move to meet customers’ needs, and cashback could well fill the gap here for some stores (and note that 68% of convenience stores already offer cashback, usually with a product purchase. That’s why I’m very interested to see the results of cashback trials. I’m probably not expecting an unequivocal green or red light, what we’re looking for are the operational issues and solutions we can learn about during the trial to help us assess what role cashback might play in the future. One of these issues is security: can we offer and promote cashback without putting colleagues at higher risk of violence by criminals targeting tills instead of ATM machines, particularly in the current environment?
Too many retailers have been unwitting victims of the changes in the cash system. This is crazy because in the places we trade and for the customers we serve, we should be at the forefront of maintaining availability of cash, and building from that to offer more financial transactions in a way that’s convenient for customers. This is the positive conversation we should be having now, and there’s no sector with a better track record of embracing change that the convenience store sector.
