Shoppers will be able to get cashback even when not buying anything, amid fears of ‘cash deserts’

Customers will be able to get cashback at shops without having to make a purchase, according to Treasury proposals to protect the UK public’s access to cash.

Cashback was the second most commonly used method by British consumers for withdrawing cash in 2019, after ATMs. There were 123 million cash back transactions last year, amounting to a total value of £3.8bn.

The benefits of shops being able to offer cashback, in addition to providing customers with a means to access cash if an ATM is unavailable, include the facilitation of local cash recycling.

According to the Treasury, this reduces costs in the cash system as it lowers the need to transport and redistribute notes and coins via cash centres.

But EU regulations made it difficult for shops to offer cashback without a purchase, as under the EU’s Second Payment Directive, only authorised businesses such as banks are allowed to provide payment services in the UK.

The Treasury said that after the Brexit transition period ends on 31 December, the government is considering a change in the rules to allow more businesses to offer cashback without purchase.

It comes as the coronavirus pandemic has pushed consumers towards card and digital payments instead of cash, due to people feeling uncomfortable handling cash that has passed through many hands.

Banks also continue to announce branch closures to cut jobs in order to steer themselves through the pandemic, further narrowing options for people who prefer to use cash. Charities have warned that the accelerated move away from cash poses a problem for vulnerable people and fears of “cash deserts” are rising.

But the Treasury, alongside the Bank of England, Payment Systems Regulator (PSR) and the Financial Conduct Authority (FCS)  is keen to find out how cashback can play a greater role in the future and ensure no one gets left as people gravitate towards digital payments.

An independent initiative to help communities retain free access to cash, the Community Access to Cash Pilots, was launched in February to experiment with scalable solutions to inform national policy.

Natalie Ceeney, chair of the initiative, said: “I’m very pleased to see the government has made progress on its commitment to protect access to cash. It is essential that we work towards a solution that commits banks, regulators, government and wider stakeholders to keeping cash viable for the millions in detail.

“This is increasingly urgent. Last year we warned that the UK was sleepwalking into a cashless society. Covid-19 has placed even greater strains on the whole system. The devil is in the detail and I look forward to seeing the government’s proposal in full.”

LINK, the UK’s largest ATM network, announced alongside PayPoint in September that it would be trialling cashback without purchase in several locations as part of the pilot initiative.

CEO John Howells said in response to the Treasury’s call for evidence: “Access to cash, including from ATMs, is under great strain because people are choosing new ways to pay and as a result of Covid-19.

“But the UK is not ready to go cashless yet and LINK welcomes the government’s intention to legislate to support cash access. LINK strongly believes that all communities should have free and convenient access to cash and we look forward to working with community representatives, regulators and industry to maintain this position for years to come.”

Consumer advice company Which?, which has long campaigned for the government to protect cash as a payment option, said the Treasury’s consultation was a positive step, but warned that businesses refusing to accept cash in light of the pandemic was still a problem.

Earlier this year, Which? found that in a study of over 2,000 people, one in 10 were refused by shops when trying to purchase essential items with cash during the pandemic.

Gareth Shaw, Head of Money at Which?, said in a statement: “We are strongly supportive of the FCA taking responsibility for protecting cash, as a current oversight of the cash system is fragmented with no one body accountable.

“While legislation protecting access is key, it risks being undermined if people cannot spend cash on the things they need. In its new role, the FCA should also look at the problem of cash acceptance.”