The future of local banking services and access to cash

Technological and social change have led to decreased reliance on both physical cash and traditional bank branches.

While cash accounted for 45% of all payments in 2015, five years later it was used in only 17% of transactions in the UK. The coronavirus pandemic reinforced this tendency.

Similarly, the number of bank and building society branches in the UK fell by about 34% between 2012 and 2021.

Who’s affected by the changes?

While such changes reflect wider economic trends, the Access to Cash Review argued that many people and small businesses risk being left behind (pdf). The Review’s 2019 report (pdf) found that older people, those on a lower income, and people with certain physical and mental health problems are particularly likely to be affected if society went cashless.

The Financial Conduct Authority (FCA) identified similar groups as most likely to be affected by bank branch closures. Many small businesses (pdf) also depend on physical branches. The Scottish Affairs Select Committee found that whole communities – especially in rural areas – are affected when the last branch in a community disappears.

Threats to the future of cash

In 2019, automated teller machines (ATMs) provided about 90% of the cash withdrawn in the UK. But ATM numbers have declined too over recent years, partly because fees payable to machine operators have reduced. Those operators have often responded by introducing pay-to-use ATMs.

Although there have been attempts to remedy that trend, it’s possible that providing ATMs could become uneconomical, leading providers to withdraw.

Many businesses and traders have also moved towards non-cash payments. This could also threaten the future of the cash distribution industry (pdf).

Responses to branch closures

There has been widespread public and political concern about the closure of bank branches and the subsequent effects on communities. Successive Governments have noted the concerns but maintained that these were commercial decisions that they would not intervene in.

Many banks and building societies signed up to a voluntary Access to Banking Protocol (pdf) in 2015, and its successor – the Access to Banking Standard – in 2017. Signatories agreed to inform and liaise with affected customers and communities to mitigate the effects, although again this arrangement did not prevent closure.

In 2019, the Scottish Affairs Committee sought “a commitment from banks that they will not close the last bank in town”. It said that if such a guarantee wasn’t forthcoming, the Government should legislate to provide it.

A new focus on protecting access to cash

More recently, wider policy and political discussion has focused more generally on the future of access to cash.

An independent Access to Cash Review was established in 2018. While not advocating “a view on the merits of a cashless society”, the Review highlighted the risks to millions of people of “sleepwalking” into such a situation. It called on Government, regulators, financial services and others to work together to “keep cash viable for the foreseeable future”. It noted that this would however require imaginative responses in an economy where digital payments predominated. It recommended that digital approaches should be made available to everyone, not just the majority.

Subsequent government and regulatory action has built on the Access to Cash Review’s recommendations:

• The Government announced a commitment to legislating to protect access to cash in 2020.
• The Financial Conduct Authority (FCA) has introduced “expectations” for banks, building societies and credit unions, as well as ATM providers, for plans to close branches or convert ATMs to pay-to-use. This widens and strengthens arrangements covered by the Access to Banking Standard.
• The Financial Services Act 2021 enabled traders to offer cashback without a purchase.
• The Government announced in May 2022 that the forthcoming Financial Services and Markets Bill would protect access to cash by guaranteeing customers “reasonable access” for withdrawal and deposit facilities. It would set and amend geographic access requirements to achieve this. It would also formalise the FCA’s powers to oversee this. The Bill would also give the Bank of England powers to oversee the wholesale cash infrastructure.
• The Financial Services and Markets Bill was introduced on 20 July 2022 and is scheduled for second reading on 7 September 2022.

More widely, the Post Office has signed a series of agreements with a wide range of banks and building societies to offer basic banking facilities to personal and business customers. Almost 3 in 10 people used those services in 2021.

A series of Community Access to Cash pilot projects has explored various alternative approaches to providing cash and banking services.

Other Commons Library briefing papers

Our briefing papers Statistics on access to cash, bank branches and ATMs (CBP-8570) and Post office numbers (SN-02585) contain more detailed data and discussion of trends. Our paper Protecting access to cash (CBP-9054) gives a detailed snapshot of policy and statistics in 2021.