The move from cash to electronic payments should be on our terms not the big banks'

The Treasury caused a stir this month by hinting that the Government might scrap 1p and 2p coins, in a landmark review of cash and digital payments released alongside the Spring Statement. The idea was swiftly discounted by No 10 after a backlash in the press. But what the move does make clear is the battle lines being drawn in the fight to decide the future of our money.

Technology is transforming the way we make payments. Just ten years ago, 22 million transactions were made in cash each day, with card payments just a fraction of that. In ten years time, that number is expected to drop below twelve million. There are a myriad of different payment methods emerging, with contactless cards, mobile payments and e-commerce increasingly displacing the traditional transactions of the high street.

But while digital payments might be growing in popularity, we should be wary of predictions of cash’s demise. The total value of cash in circulation is actually rising. Around 2.7 million people in the UK use cash for almost all of their day-to-day payments, and left to their own devices, many will continue to do so for decades to come.

People choose to use cash for a variety of reasons. Many, particularly those on low incomes, find physical notes and coins useful for budgeting. Others prefer to manage their money without having to rely on banks; perhaps because of a previous bad experience, or a fear hidden fees and charges, and the risk of getting into debt. Using cash makes sense for many people, and they shouldn’t be forced to give it up.

Our copper coins are safe for now, but there are still powerful forces including Visa, Mastercard, and the big banks, which threaten the future of cash, and with it, the ability of millions of people to manage their money in the way they choose.

With the ongoing closure of bank branches, most of us rely on ATMs to access cash. But pressure from banks and card companies could make widespread free ATM access a thing of the past.

ATMs are funded by a fee paid by the bank or building society that issues your card to the company that runs the ATM. For example, when you take out cash, your bank will pay the ATM company 25p for the privilege. For years, the fees were calculated by an independent auditor, so that the fee is roughly equivalent to the cost of operating the machine. That's how we ended up with the healthy spread of ATMs we have now.

But that situation is changing. Link, the scheme that connects all the ATMs, has relented to pressure from big banks to reduce the fee they have to pay. Although Link is ostensibly independent, in reality the big banks call the shots, because they’re the network’s biggest funders and the future of the whole scheme would be under threat if they choose to leave it.

And recently, the banks have been given a new excuse to push for reduced fees. The card companies Visa and Mastercard operate their own alternative ATM schemes, in competition with Link. These schemes have reportedly been offering banks the option to pay rates as much as 30 per cent lower than Link’s; below the true cost of handling the transactions. If one or more major banks switched to these alternatives, it could make many ATMs no longer viable.

So what are they up to? These developments have to be viewed in the context of VISA and Mastercard’s ongoing efforts to discourage cash use. The former is spending millions on its “cash is awkward” ad campaign, and has even paid US retailers to stop accepting cash.

Link has tried to reassure worried MPs that the reduction in its fees won’t have a big effect on the overall number of ATMs, and has promised increased subsidies for ATMs in isolated areas. But because banks are in such a powerful position, Link’s commitment to widespread ATM coverage is only good for as long as its member banks are prepared to pay for it.

In reality, the only thing that stands in the way of the closure of thousands of ATMs, is whether the Government is prepared to intervene. Currently, there’s no public body with a specific duty to protect cash access. This should be made the job of the Payment Systems Regulator, and it should clearly set out its minimum expectations for what level of cash access the public can expect, and proactively ensure that it is upheld.

The long-term move from cash towards electronic payments is undeniable. But it should happen on our terms, not on those of the big banks and card companies which risks leaving millions of people behind.

David Clarke is head of policy & advocacy at Positive Money and author of 'The Future of Cash: Protecting access to payments in the digital age'