ERPB Report on Access and Acceptance of Cash in the Euro Area

In November 2021 the Euro Retail Payments Board ¹ (ERPB) Working Group on Access and Acceptance of Cash ERPB issued its report.

This broad ranging paper noted the wide variety of approaches to cash, no doubt reflecting the individuality of each country, which is an opportunity to see what works but also a challenge if trying to co-ordinate a response.

It identified the need to create a sustainable cash business model and highlighted the lack of data on the cost of different payment options.

It also highlighted the low level of use of alternatives to branches and ATMs for cash issue and depositing and the need to develop more.

Access to cash facilities

The objective is that cash is an affordable and sustainable payment option which is also useful for cross-border payments and available if there is digital disruption. The report drew conclusions in five areas.

• Consumers report challenges to access cash in some regions.

Although there is not a shared definition of what a rural area is across the euro area, it is clear that access to cash can be a problem where bank branches and ATMs are closing. This also applies where there are significant seasonal flows of tourists. Work is needed to understand the age and profile of those communities since this may make problems with access to cash even more severe.

It is not just the distance that has to be travelled to access cash that is an issue. There is also a problem about the service levels of ATMs in these communities, which can also mean cash is not available even if there are ATMs in place.

Across the euro area not all credit institutions are required to analyse the impact of closing branches and ATMs, or consider the availability of realistic alternatives for the depositing and accessing cash.

The set up and density of today’s ATM network reflects the national banking system, the level of competition and historic merger and acquisition activity between banks. The result is an uneven picture across the euro area. This also affects the cost-profit model in each country and whether ATMs are a cost or profit centre.

Most ATMs, unless operated by an Independent ATM Deployer (IAD), are regarded as cost centres. With falling cash volumes, credit institutions need to consider their business models. The countries’ legal framework and fee structures will play an important role in determining whether moving to a shared services model is useful.

• ATMs networks need a sustainable cost-profit model, especially in the context of declining cash usage.

The report says the European Central Bank (ECB) assumes accessing cash should be ‘free or are charged only a reasonable fee’. It does not define what this is.

The report goes on to say, ‘regulations capping or banning fees for withdrawals or deposits should be carefully considered as they may impact on the sustainability of cash services.’ This statement implies a key dilemma – who pays if cash is uneconomic for a commercial organisation to provide?

Mention is made of smartsafes and drop boxes as new ways of addressing the need to deposit cash.

• Regulatory fragmentation and unclear guidance on access and accessibility measures across euro area countries.

80 million Europeans have some sort of disability. The European Accessibility Act (EAA) was passed in 2019 but only now is implementation beginning. At the moment there is not yet a common understanding of what the EAA means in practice and common standards are impossible. Work is required in this area.

• Cashback and Cash-in-Shop as alternative ways of accessing cash are scaling up very slowly with limited data and a lack of incentives.

There are no agreed definitions of Cashback (CB) and Cash-in-Shop (CS). The urgency of this is highlighted in that these terms are also used by electronic payment providers to describe rewards for paying electronically or for consumer attraction programmes.

There is little data on the actual scale of CB and CS usage. The evidence that does exist suggests that it is only at a marginal level currently. The report highlights the need for a technical solution to generate this data, for example automatic reports that show how much of a payment was for a product/service and how much was CB or CS.

CB and CS are intended to complement accessing cash through bank branches and ATMs, but the report wants them to be scaled up alternatives. To encourage this, it suggests rules are reviewed to encourage their adoption, for example excluding them from the scope of future regulations (Article 3 (e) PSD2) and waiving the requirement for retailer to have Payment Service Provider licences.

However, the report goes on to highlight three issues.

First, there needs to be a level playing field between banks and retailers given banks own, or outsource, existing routes to cash, their branches and ATMs.

Second, if CB and CS do increase, retailers may not have sufficient cash to meet demand, particularly in rural areas.

Third, currently interchange fees are paid on the full amount of the payment, a significant disincentive to retailers offering CB and CS. The report suggests looking at financial incentives to encourage retailers, such as ‘reverse interchange’ which is used in Austria today. It highlights the cost of this but does not say who should pay for these incentives.

A public information campaign is needed to increase public awareness.

• Only limited other alternative ways to prevent cash supply deficits.

Other than bank branches, ATMs and CB and CS schemes, national post office networks are the main alternative solution of accessing cash. Post offices can also find that cash services are a cost centre. The report highlights the need to address this challenge and to explore other alternatives such as shared bank hubs, mobile ATMs, bus branches and cash deliveries.

Key findings on acceptance of cash

Where a minimum level of cash infrastructure and services have been maintained, including merchants being able to access and deposit cash, cash acceptance is not a reason for merchants to move to ‘cash only’. The need for such infrastructure, and the associated administrative actions involved in cash management, can be seen as disincentive to using cash. Big retailers tend to outsource cash management, making it a visible cost. In addition, these costs are fixed/semi-fixed and so if cash volumes fall, the unit cost rises.

At the moment, the influences that determine whether retailers accept cash are consumer preferences, security and safety and cost. The report found that a lack of clarity on the legal tender status of cash is unhelpful. The tension is between mandatory acceptance and freedom of contract, and clarity is needed on the ECJ combined judgements on C-422/19 and C-423/19. Across Europe the situation varies between cash payment being a legal and a voluntary requirement.

In addition, there is no clear view on the cost of cash compared with other payment methods, with a lack of research in this area.

General key findings on access to and acceptance of cash

• There is a diverse set of initiatives being taken across countries and regions: cash usage varies considerably across the euro area, as do the approaches being taken by National Central Banks. The results of the different approaches need studying to see whether general lessons can be learnt.

• Creating national discussion forums may help finding balanced strategies for access and acceptance of cash.

Forums have no formal competences and therefore need agreement between the parties to progress. The option to use the law to drive change remains. Forums could lead to even more fragmentation, for example if they adopt different criteria for what should be the distance consumers have to travel to access cash. Convergence at a euro area level is suggested working through a guiding body, the ERPB or one of the other institutions already in existence.

• Generic findings: the future of the one and two cent coin needs discussion. Although the ERPB did not consult small and medium size enterprises or government market actors, its work suggested these coins are not necessary.

Working group conclusions

The working group suggests further monitoring of cash access and acceptance to ensure it remains inclusive, efficient and sustainable, working alongside digital payments in the retail sector, perhaps by the ERPB or via a dedicated body (eg. EFIP and/or ECAG) in consultation with industry stakeholders.

It found an overall declining trend in the use of cash and concluded that local actions may be needed at different points in time before critically low levels are reached.

The report identified a number of areas where more data, more research or clarification would be useful. It found some gaps in access to and acceptance of cash. It sees benefit in exploring whether some coordinated action is needed at EU and/or national level to ensure cash availability in line with the Eurosystem Cash Strategy.

The working group would find it useful if an additional study on the societal costs and benefits of different payment instruments in the euro area would be conducted to support future work and policy discussions in this area.

1 - The Euro Retail Payments Board (ERPB) is a high-level strategic body tasked with fostering the integration, innovation and competitiveness of euro retail payments in the European Union.