The future of local banking services and access to cash

People are relying less on both physical cash and traditional bank branches:

• Cash was used for only 14% of all payments in the UK in 2022 (pdf), according to data from the trade body, UK Finance.
• The number of bank and building society branches in the UK fell by about 34% between 2012 and 2021, according to the Office of National Statistics.

Who’s affected by the changes?

While such changes reflect wider economic trends, the independent Access to Cash Review highlighted the risks to millions of people of “sleepwalking” into a cashless society. Research by the Financial Conduct Authority (FCA) in 2022 found that the digitally excluded, older people, people in poor health, those with lower financial resilience and those with lower financial capability depend more on cash.

In 2019, the FCA identified similar groups as being most likely to be affected by bank branch closures. Many small businesses also depend on physical branches, according to a report from the Federation of Small Businesses in 2016. The Scottish Affairs Select Committee reported in 2019 that whole communities – especially in rural areas – are affected when the last branch in a community disappears.

Threats to the future of cash

In 2022, automated teller machines (ATMs) provided about 90% of the cash withdrawn in the UK. But the number of free-to-use ATMs has fallen 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, the National Audit Office warned in 2020 that providing ATMs could become uneconomical, leading providers to withdraw. But the number of pay-to-use ATMs has also fallen since 2019.

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 acknowledged the concerns but maintained that these are commercial decisions that it would not intervene in.

From 2020, the Financial Conduct Authority (FCA) has published guidance setting out expectations for banking providers that intend closing or reducing branches, services or free ATMs. It expects the provider to analyse the effect, communicate with customers, and support them to find alternative provision.

A new focus on protecting access to cash

In recent years, wider policy and political discussion has focused more generally on the future of access to cash than on branch closures.

In 2019 the Access to Cash Review called on Government, regulators, financial services and others to work together to “keep cash viable for the foreseeable future”. Government and regulatory responses have since referred to and build on the review’s recommendations:

• The Government said in 2020 that it was committed to supporting the use of cash, noting its importance to people who are financially excluded.
• The Financial Services Act 2021 enabled traders to offer cashback without a purchase.
• The Financial Services and Markets Act 2023 gives the FCA powers to ensure that customers have “reasonable access” to free cash deposit and withdrawal facilities. The Treasury notes that currently most people and businesses in urban areas have access to such facilities within one mile, while most people and businesses in rural areas have such access within three miles. It says that the Government’s broad aim is to maintain this.
• The FCA will consult on further detail. It says that new rules should be in place by summer 2024.
• The 2023 Act also gives the Bank of England powers to oversee and protect the wholesale cash infrastructure.

Post Offices, banking hubs and other provision

• The Post Office has signed an agreement with about 30 banks and building societies to offer basic banking facilities to personal and business customers. Almost 3 in 10 people used those services in 2021.
• LINK, which runs most ATMs in the UK, undertakes Community Access to Cash Reviews for communities that believe their needs are not being met. Those reviews may result in the provision of new services. One such service -the banking hub – provides a physical site where a range of providers offers in-person services to customers This is in addition to wider cash services offered though the Post Office’s service.
• By September 2023, seven banking hubs had opened and 83 more had been approved. There have however been concerns about delays between other banking services closing and banking hubs opening.

Further reading

• Statistics on access to cash, bank branches and ATMs and Post office numbers (contain more detailed data and discussion of trends.
• Protecting access to cash gives a detailed snapshot of policy and statistics in 2021.