Getting your hands on money has never been so important, yet nobody wants to touch it. Mark Hall explores the urgent need for a more inclusive digital economy.
Cash and the coronavirus
Many of us won’t have used cash for weeks. And we probably haven’t even noticed.
The coronavirus has made our lives increasingly digital. In the last few weeks I’ve switched all my meetings to Zoom, been to a virtual pub, ordered my shopping online, and started to brush up on my Spanish using a mobile app.
While much of my life has had to adapt, the way I pay for things hasn’t really changed. For others, it could be transformational. Many people won’t visit a bank or ATM for months. Those with strong social networks and good internet connections will be nudged online, breaking many people’s deep-rooted connection to cash and coins. When we emerge from this crisis it will be to a more digitally savvy society. But some people will have been left behind.
For millions of people who have no internet access, limited digital literacy, or are heavily reliant on cash, the coronavirus is another unwelcome hurdle to managing their finances and making payments. Bank branch and ATM closures were already becoming a major cause of financial exclusion. The coronavirus will only make things worse.
In other crises, cash has bailed us out. When tech fails, we fall back on cash. When the banks failed, people queued outside to get their hands on it. But this is a very different kind of crisis. Fears over the cleanliness of cash, restrictions on people’s movements, and closed businesses across the UK have led to the use of cash plummeting by 50 percent compared with this time last year. And it will fall further.
The longer we are asked to stay inside, the more vulnerable the cash economy could become. Plans to increase contactless payments to £45 have been rushed through, making going cashless even more convenient. New payment habits will form for both businesses and consumers. The infrastructure that underpins the cash economy will come under severe strain. Two of the major cash machine operators, LINK and NOTE, have reaffirmed their commitment to keeping cash circulating, but it’s hard to see how this won’t have a negative impact on the ATM network.
Forecasts prior to the coronavirus suggested that by 2028 less than one in 10 payments will be made in cash. Some in the industry now fear that a ‘huge fall-off owing to the virus will shunt the country into a position that it would not have reached otherwise for a decade or more’.
Hidden away in the Chancellor’s Spring Budget was a commitment to protect access to cash.
The fight to protect cash had only just been won. But now it’s fighting a new battle.
Banking the basics
While some banks and building societies have closed branches temporarily closed due to the crisis, many remain open on limited hours, with Lloyds and RBS also offering extra support, such as cash deliveries and special opening hours, for NHS staff and over 70s. Credit unions continue to offer vital support to their members, many who will be struggling with the impact of the pandemic. This infrastructure remains essential for communities, but the industry also needs to do much more to ensure everyone can participate in the digital economy.
An important step for the banking sector is ensuring everyone can access a bank account.
There has been some movement on this in recent months, particularly in making it easier for people with no fixed address to open a basic bank account. The leading digital bank Monzo launched a No Barriers to Banking campaign last year. Proxy Address, one of the organisations that participated in the RSA’s Economic Security Impact Accelerator, is working with a range of banks, charities and local authorities to address this by linking people to unoccupied properties. And this movement in the market has kicked some of the bigger banks into action, with HSBC and Lloyds recently launching similar schemes.
An emerging network of local co-operative banks is aiming to shake things up further, ensuring everyone in their region can access a full bank account – providing online banking alongside a new network of branches.
But this is not just about bank accounts. It’s about ensuring the eight million people who wouldn’t feel confident without cash can start to fully participate in the digital economy. And that needs a more radical agenda.
Four ideas for a more inclusive digital economy
- A shift towards digital payments means a hike in revenues for the likes of Visa, Mastercard and Apple, and reduced costs for banks. The banking levy should be reformed to fund a digital transition, as outlined by IPPR’s Centre for Economic Justice. This fund could be used to support those who are currently underserved digitally – funding improved internet connectivity, enhanced digital capability, and fostering inclusive innovation from fintechs.
- The coronavirus has forced a major communications push from banks to provide more information about accessing online or telephone banking. Banks should make a concerted effort to ensure all customers are signed up to an alternative to physical banking. The government should work with the FCA and the banks to ensure a digital transition strategy is developed alongside the measures to protect cash that were announced in the budget.
- Open Banking is a huge opportunity to give people more control over their financial data and drive digital innovation, so products work better for customers. However, limited public awareness is leaving its potential unfulfilled. The Finance Innovation Lab has called for a social investment fund to support the development of new products that benefit citizens and a mass public awareness and education campaign to improve knowledge and take-up.
- With Facebook’s digital currency, Libra Coin, due to launch this autumn, governments and central banks across the world are exploring the idea of issuing their own electronic currencies known as Central Bank Digital Currencies (CBDC). It’s essential that one dominant digital currency does not emerge as a monopoly, eroding competition and privacy.
The Bank of England has launched an open consultation to get input from the public, industry, and academics on this idea. If digital currencies start to gain momentum globally and CBDCs can be designed in a way that protects financial stability, then a digital form of Sterling become could be more likely. It would be wise to get ahead of the curve. Public engagement beyond the Bank of England consultation will be crucial and citizens panels should be used to assess public preferences and opinions prior to any implementation. This should complement, not replace, paper banknotes.
The government will need to deliver on their pledge to ensure all homes and businesses can access full-fibre broadband by 2025, prioritising the 20 percent of rural premises that are hardest to reach. And work should start now with broadband providers and local authorities help to connect those who have no online access during the lockdown.
The banks should not be able to use this as an opportunity to cut off access to cash. The Chancellor will need to work closely with the industry and regulators to keep cash flowing throughout the crisis and ensure the infrastructure remains in place beyond it.
But who knows what the next crisis will be? Ensuring everyone can participate in a reinvigorated digital economy will be just as important as keeping cash alive, if not more so.
Mark Hall is Deputy Head of Engagement in the Economy Team at the RSA. You can follow him on Twitter @MarkHallRSA.