In this blog, Sabrina Rochemont of the IFoA’s Cashless Society Working Party discusses why, as cash reduces, a digitally-based financial inclusion programme will be vital.
The independent Access to Cash Review recently found that over 8 million adults in the UK would struggle to cope in a cashless society. Many of these people are vulnerable in one or more ways: they may have no bank account or no internet access, for example. As the overall use of cash diminishes, protecting these people’s rights will become ever more important.
The IFoA’s Cashless Society Working Party has been calling for the active management of the transition towards a less-cash society, and is particularly concerned about how lack of planning could affect financial inclusion.
In its final report in March 2019, the Access to Cash Review recommended creating a sustainable cash distribution model rather than protecting cash by law. We agree because we think legislating to provide access to cash would be counterproductive. This is because the ever-reducing use of cash means that the cost of its use, per unit, will increase over time, and it is likely that the extra cost will mostly fall on those who use cash, such as the unbanked, and the poorer and older members of society. However, these are the very people such legislation would try to protect.
So we accept the Access to Cash Review’s recommendations about protecting cash, but we believe this is only part of the answer. The Working Party has examined these issues globally, and based on this research we believe the Government should implement a financial inclusion programme. The IFoA recently wrote to key stakeholders in government and regulatory bodies to make the case for such a programme.
We think the key focus of the financial inclusion programme should be to help those who are likely to be challenged by the transition to a less-cash society by ensuring they can access vital digital financial services. For example, mobile money is still absent from the UK payments landscape, yet it has helped many people without a bank account in developing countries such as Kenya. There, the mobile network operator M-Pesa has been filling banks’ underserved markets by enabling peer-to-peer mobile payments.
Another policy option is to equip financially excluded groups with smartphones and internet access. This could help to address the ‘poverty premium’ – the phenomenon that the poorest or most vulnerable in society are finding it harder to access services and as a result may end up being charged more – for example they could miss out on the best utility offers, financial management (including budgeting) and banking apps.
We are also encouraging the Government to consider how those without any formal (paper) documentation such as identification or home address can create a digital identify, as lacking this is a barrier to opening bank accounts. As banks prepare to launch biometric payment cards (using fingerprints instead of PIN numbers for security), now may be the right time to redefine documentation requirements and consider the benefits of National Digital Identification.
We also recommend that the Government should assess certain risks which have materialised in some developing countries and might also affect the UK. For example, customers who are newly introduced to bank accounts or electronic means of payment may find themselves vulnerable to aggressive commercial exploitation, and they will need good quality financial education to avoid harm. Similarly, the boom of ‘Fintech’ services has been supporting business growth through short term unsecured loans, but there has been growing concern about loans being used to finance problem gambling. Sudden access to ‘helicopter money’ must therefore be managed carefully.
In summary, we believe that it would be short-sighted for the Government to focus only on how to distribute enough cash to meet future needs. Instead, a comprehensive financial inclusion programme is needed to help those who are vulnerable in a ‘less cash’ world. By utilising the technological solutions we have highlighted, we believe that the ecosystem of relevant organisations and services is ready to deliver value to many currently underserved customers.