Advice NI Response to Access to Cash Consultation September 2021

28 September 2021 13:00
  • Consultation Responses

Advice NI Response to Access to Cash Consultation September 2021

Background

Advice NI is a membership organisation that exists to provide leadership, representation and support for independent advice organisations to facilitate the delivery of high quality, sustainable advice services.  Advice NI exists to provide its members with the capacity and tools to ensure effective advice services delivery.  This includes: advice and information management systems, funding and planning, quality assurance support, NVQs in advice and guidance, social policy co-ordination and ICT development.

Membership of Advice NI is normally for organisations that provide significant advice and information services to the public.  Advice NI has over 70 member organisations operating throughout Northern Ireland and providing information and advocacy services to over 110,000 people each year dealing with almost 250,000 enquiries on an extensive range of matters including: social security, housing, debt, consumer and employment issues.  For further information, please visit www.adviceni.net.

Question Responses

Do you agree that legislation should provide the government with powers to set geographic requirements to ensure the provision of withdrawal and deposit facilities to meet cash needs through time?

Yes, we agree that that legislation should provide government with powers to set geographic parameters to ensure the provision of withdrawal and deposit facilities to meet cash needs through time.  Provision of cash withdrawal and deposit facilities reduces financial exclusion which has been shown to negatively affect education, employment, health, housing and overall well-being.  When it comes to financial exclusion, NI is a region where 10% of people have no bank account, and which has, when compared against figures in Britain, the second highest rate of branch closure; the highest mean distance to a free cash access point; the largest percentage of people who prefer to use cash; one of the highest digital exclusion rates; and the most severely deprived constituencies where it is proven that reliance on cash is greatest.

Financial inclusion is a fundamental requirement with significant socio-economic benefits for society, so much so that it needs government intervention and should not be left to the dictates of the free market.  When left to market forces, these basic financial services are dominated by shareholder and corporate interests and not the interests of customers.  The trend in branch and ATMs closures is not entirely driven by customer demand and preferences but by of the profit motive i.e. closing them reduces costs and in turn increases profits.  Ideally, a move away from complete reliance on profit-driven banking services and towards purpose-driving banking would be a better deal for customers.  The emerging mutual bank movement in Britain and NI, discussed later in this paper, is an example of purpose-driven banking.

Do you agree that legislative geographic requirements should target maximum simplicity?

We agree that legislative geographic requirements should target maximum simplicity by placing a focus on what is relevant i.e. reasonable access to withdrawal and deposit facilities.  At the same time, simplicity should not come at the expense of reasonable provision of withdrawal and deposit facilities.  It is necessary too that legislative geographic requirements are fit-for-purpose.  They must meet the needs of customers.  And they must be capable of evolving in response to changing the needs of cash users over time.  A flexible approach will better allow for new innovative solutions to be implemented in future, and for local and idiosyncratic factors to be taken into consideration as appropriate.

Do you agree that geographic requirements should initially be set to provide a level of reasonable access to all areas, reflecting the current distribution of cash access facilities?

It seems sensible that geographic requirements should initially be set to provide a level of reasonable access to all areas and reflect the current distribution of cash access facilities.  However, the word ‘reasonable’ should be defined to eliminate any possible ambiguity or conflict of interest, since what is reasonable for financial institutions might not be reasonable for customers.  Financial institutions want to reduce their costs, so for them it may be reasonable to close branches and ATMs, thus reducing access to cash.  This conflicts with what is reasonable for customers who want access to cash within close proximity of where they live.  Again, this is why government intervention in financial inclusion and the provision of access to cash is imperative.

Do you agree it is necessary to allow for requirements in Northern Ireland and Great Britain separately?

Do you think that requirements in Northern Ireland and Great Britain should be set at a consistent level?

We agree it is necessary to allow for requirements in NI to be treated separately from those in Britain, and that a consistent level between both would not lead to the best outcome for customers either in NI or in Britain.  NI has been shown to have specific circumstances and significant differences.  These must be taken into account to ensure that access to cash requirements are tailored to suit the needs in the respective regions.  A blanket, one-size-fits-all approach will not take NI’s specific problems into account and will not result in the right level of protection or choice for customers in NI or Britain.  A number of differences are relevant when making decisions about access to cash requirements for NI:

  • Branches and ATMS:
    • Since 2015, NI has seen a steady closure of bank branches and ATMs.  We have lost 30% of all our branches since 2010 and have the second highest closure rate when compared against rates in Britain.  The commercial banks point to the reduced demand for cash and face-to-face services and the increase in digital and online options as reasons for the closures.  However, they neglect to mention that a primary motivation for these closures is that of cost reduction.  Banks, like any corporate entity, are legally required to maximise their profits.  Cutting costs, such as branch and ATM closures, is an obvious way to do this, even if it is not in the best interests of customers.  These closures are acutely felt in rural areas where people are more likely to have to travel greater distances to access cash.  NI is a largely rural region, and at 678 metres, we have the highest mean distance to a free-to-use cash access point.  In addition, there has been a 15% reduction in the number of cash access points, with the largest contributor to this decline being free-to-use ATMs.  Clearly, this is going to be problematic in a region with the largest percentage of people who prefer to use cash, when compared with Britain.  Notably, the drop in cash withdrawals in recent years has fallen by the same percentage as the decline in free-to-use ATMs.  This fall in cash withdrawals relative to the fall in free access to cash shows a possible causal link between use of cash and free access to cash.  If free access to cash is available, people are more likely to want to withdraw cash, thus going against the commercial banks’ narrative that people don’t want to use cash.
  • Reliance on cash:
    • Despite the decline in cash payments in recent years, research shows that it remains the second most frequently used method of payment and many people continue to rely on cash to make payments.  It is estimated that 2.1 million people across Britain and NI still rely on cash for their day-to-day spending, more commonly for small value transactions, such as groceries, drinks, newspapers, etc.
    • Cash is also popular among people who have to live on tight budgets, as it is often easier to control spending with cash rather than other forms of payment.  People on budgets often like being able set a budget and withdraw fixed amounts.  This makes it easier to keep track of what is being spent.
    • People living in the most deprived neighbourhoods are more likely to use cash.  At 37%, NI has the highest number of people who prefer using cash when compared with regions in Britain.  This should be no surprise given that NI has among the highest deprivation levels when compared with Britain.  It is also true that pay-to-use ATMs are more likely to be the nearest source of cash in the most deprived neighbourhoods, and those areas have seen a 23% increase in pay-to-use ATMs alongside a 19% decrease in free-to-use ATMs.  Since one of the big reasons for using cash is to help budget limited funds, people in the worst-off areas will be more inclined to use ATMs more frequently than others so reduced access to free-to-use ATMs impacts them disproportionately.  Free-to-use ATMs should be more readily available in deprived areas.
    • Other categories of people who rely heavily on cash are those from vulnerable groups such as older people aged 75+, with 42% of those over 85 relying on cash; adults with poor mental health, low mental capacity or cognitive difficulties; adults with a physical disability; adults with long-term health conditions; and rural dwellers.  The FCA’s ‘Financial Lives’ Survey shows that the prevalence of vulnerable customers in NI is at 56%, compared to an average of 50% across the UK.  This higher level of vulnerability is a driving force for a higher reliance on cash in NI.
  • Digital access:
    • Another problem that unreasonably impacts access to cash in NI is digital access.  NI has one of the highest digital exclusion figures when compared to regions across BritainDigital exclusion is linked to deprivation too where 11% of adults in the most deprived neighbourhoods are digitally excluded, compared with 7% in more affluent neighbourhoods.  While lack of digital skills is certainly a problem in NI, there are also issues of limited mobile phone network coverage and broadband access in some of the more rural areas in NI which can leave customers unable to use mobile and online banking easily, even if they have signed up to it.

Do you agree that requirements should be targeted at the largest payment account providers?

Yes, requirements should be targeted at the largest payment account providers.  These are most often the too-big-to-fail institutions that have been bailed out in the past using public money.  These are also the institutions that benefit most from the deposits of account holders, and who making enormous profits by doing so.  It seems right and fair that they should be designated to take responsibility for providing access to cash.  And geographic designation only makes sense if a provider operates in that particular geographic region.

However, despite what responsibility is place on providers, it cannot be ignored commercial financial institutions such as banks do not exist to provide a service for customers but to make profits for their shareholders; and corporate legislation makes it a legal requirement that they pursue profits.  The result will always be a conflict of interest because the customer must come second to the profit motive.  This is one of the many reasons we argue that mutual banking (discussed later) is better for serving the needs of customers.

Are there other factors beyond those listed that the government should take into consideration when designating firms?

The factors listed are adequate.  Although perhaps, the provider’s profits could be another factor, with profits over a certain thresholds indicating that the provider has greater ability to provide reasonable access to cash.

Do you agree that the FCA should be the lead regulator for monitoring and enforcing requirements on access to cash?

Do you agree with giving the FCA discretion on additional requirements for qualifying cash facilities?

We agree that the FCA should be the lead regulator for monitoring and enforcing requirements on access to cash, and that the FCA should be given discretion on additional requirements for qualifying cash facilities.  The FCA is independent of any financial institution and provider and therefore is best placed to act as the lead regulator for monitoring and enforcing requirements on access to cash.  Crucially, in addition to these new responsibilities, the FCA must also be given adequate powers to enforce regulations.  Otherwise, this will be nothing more than a paper exercise.

One drawback for NI, is that the FCA does not have a physical presence here and that will diminish its ability monitor and enforce requirements in this region, or to identify additional requirements as needs change over time.  We recommend that this gap be addressed.

If geographic requirements are being met at a national level, do you think there are any circumstances in which the FCA should nevertheless be able to intervene at a local level?

The FCA should be given the power to intervene at a local level, taking changing circumstances into consideration to provide what is best for a given area without interfering arrangements that are working well elsewhere.  FCA oversight should focus on maintaining good outcomes for customers, whilst remaining flexible in order to adapt to changing cash use behaviours over time, and to accommodate new models for supporting access to cash.

Do you have any other views regarding the future role of the regulators in protecting cash?

A number of Community Access to Cash Pilots were launched recently through Post Office Banking Hubs.  One of the Hubs was piloted here in NI, in Millisle, Co Down.  The Hubs represent a new model for high-street banking and offer customers access to basic banking and cash withdrawals and deposits through a counter operated by the Post Office.  In some cases, banks with high volumes of customers in a given area will provide face-to-face community banking services.  The Hubs are a substitute for branches which have closed and would serve to fill the gap left by closures.  We recommend that more of these Hubs are established.

We also recommend the establishment of a network of regional mutual banks across Britain, and for one in NI.  The efforts made in recent years to introduce more competition in the provision of banking services (New Bank Start-up Unit, lower regulatory barriers, etc.) have been the catalyst for creating a movement of mutual banks across Britain as well as one in NI that will promote financial inclusion and fair and ethical banking, answering to customers and shareholders.  In NI, our campaign for the Northern Mutual bank is underway.  To ensure greater financial inclusion and sufficient access to cash, the campaign envisages using a mix of physical and digital banking services in both manned and automated branches which facilitate all financial services including cash withdrawals and deposits, along with creative ideas for branch location e.g. co-locating branches in community centres, Credit Unions, etc.  Mutual banks are also a means to break up the oligopoly that dominates the banking sector which has created institutions that are too-big-to-fail, and all the danger that brings.  We recommend further government support for the mutual bank movement and assistance for every region to have its own mutual bank, in the first instance by creating a Development Fund which regions can draw upon to help them in the early development phase of their respective campaigns.

 

Bibliography

Contact information:

Advice NI Policy Team:

Kevin Higgins kevin@adviceni.net

Charlotte Brennan charlotte@adviceni.net

Dr Bridget Meehan bridget@adviceni.net

Matt Cole, matt@adviceni.net

Advice NI

Forestview

Purdy’s Lane

Newtownbreda

Belfast

BT8 7AR

Tel: 0800 915 4604 www.adviceni.net

Last updated:
29 September, 2021