Ensuring Payment Choice in the Euro Area

The European Central Bank (ECB) has published an article discussing access to cash in the euro area 1.

It examines the challenges of distance, capacity and public perception and different approaches to modelling them. The paper includes an examination of Austria’s access to cash study by Helmut Stix and Simon Thielen with its granular spatial analyses and vulnerability analysis. It considers the role of commercial bank fees and ends by touching on different approaches to maintaining access to cash across Europe.

The ECB believes that people should be able to choose how to pay regardless of individual payment preference, geographic location or technology savviness. With cash remaining the most popular transaction choice for point-of- sale (POS) and person-to-person (P2P) payments, as well as being used to save and for liquidity in a crisis, the ECB has taken steps to monitor what is happening to cash.

Understanding the ability of the public and businesses to access cash is all the more important as declining cash usage can lead to reduced provision of cash services. With high fixed costs, the pressure on the private sector to reduce costs, or to increase fees, rises as volumes decline. This, of course, makes it more expensive in terms of time, effort and money, to access cash leading to lower use. A vicious circle can be created.

The benefit and need for cash

Many see significant benefits in a more digital world. They see electronic payments as offering access to this digital world and they both promote digital payments and seek to restrict the use of cash, for example through strict cash payment limits. These people ignore the perspective of the cash user and the benefits that cash provides to these people. The cost of the restrictions can be greater than the benefits.

They also ignore the preference of some to make low value payments in cash, to use cash in locations such as shops and restaurants or the need to use cash in rural areas and areas where digital connections are hard. They ignore cash as a legitimate safe haven of value and deprive society of choice.

The loss of cash has a greater impact on those dependent on cash and the financially excluded – ie. the 13.5 million Europeans with no bank account and limited access to financial services as well as the underbanked, namely those with a bank account but limited access to financial services.

A 2019 ECB survey showed 2% of over 18 year olds had no access to cashless payments. Further analysis shows 3% of those over 65 year olds and 4% of those with only primary or secondary education have no access. 10% of people living in Cyprus, Greece and Malta have no access.

Even if there were a digital euro, digital solutions are not always the right answer. Given the need for cash and its benefits, the Eurosystem supports cash and its related infrastructure and the ECB is monitoring cash acceptance as part of its protection of cash.

Measurement challenges

Traditionally bank branches and ATMs have been the way people access and deposit cash. The number of bank branches is falling, as are ATMs in many countries.

In a few though, such as Germany, Austria and Italy, the number of ATMs is rising. A transition to ATMs becoming Cash Recycling Machines (CRMs) has also started.

Fewer cash access points does not automatically mean less access to cash. To understand what is happening one needs to know if ATMs are clustered together, what alternative access points are there and what fees are being charged. What is the density of cash access points and what is their proximity to citizens, what is the direct cost for citizens and what is the risk of vulnerable people being excluded?

Distance/coverage problem

If there is an ATM on your route to work, even if five or ten kilometres away, then your access to cash is not compromised. If it is three kilometres away and you don’t have transport, you have a problem. Also, are there enough ATMs relative to the user base around them?

A recent ECB study measured the straight line distance to ATMs across each country in the Eurosystem. It measured 5, 10 and 15 km distances. At best 100% of people were within 5 km, at worst 77%. For 10 km, for the worst areas it was 86% and at 15 km 93% coverage. In half the countries, 87-98% of the population were within 5 km. The median result was over 95%.

These results are not regarded as problematic and the ECB is comfortable that the population currently has reasonable access to cash.

Despite that, the ECB has developed a facility location model to compare the current network with a theoretical network that achieves maximum coverage. The model measured the minimum straight line distance between cash access points (CAPs) and locations with populations, including taking into account cash intensive outlets such as shops and restaurants. It looked at the maximum coverage of the network.

It looked at a region which had 160 CAPs per 100,000 people in 2020. Coverage was 81% within 5 km. If ATM locations and numbers were optimised, that region would achieve a 99% coverage but need 5% fewer ATMs.

What the model does not consider is whether there is sufficient capacity, cost efficiency or the road distance/travel time distance to the ATMs. Where gaps are identified, it does allow the targeting of optimised ATM locations, cashback capability, mobile bank branches and cash access with public-private cost sharing.

a. Capacity problem

The simple solution is to relate the number of CAPs to the population. A survey of Eurosystem ATM numbers per 100,000 people shows a range of 30 to 134, but it takes no account of the uniformity of population densities.

Demand for CAPs has to be estimated using factors which predict demand for cash; the number of cash intensive locations, the socio-economic mix of the population (age, income, education, rurality, financial literacy) and behaviour factors such as the preference for cash.

The public perception of the ease of access to cash also needs to be considered. An ECB survey found 25% of people in Malta regarded access to cash as ‘difficult’, 17% in Greece, 16% in Lithuania and 15% in Belgium.

There is also a need to assess how vulnerable systems are if branches and/or ATMs close, the robustness of the system in terms of the number affected and the additional distance that has to be travelled as a result.

b. Austria’s ATM access study

Austria’s central bank carried out a granular spatial analysis of its ATM network. The country was divided into a grid of 100 x 100 m². For each populated grid the distance travelled by road, by car and by foot to an ATM was recorded.

This approach was taken because of Austria’s mountainous topography. For the population, the main residence was aligned with the grid to allow statistics for a population-weighted summary of municipalities and provinces.

The results found 40% of Austrians live within 500 metres of an ATM and just over 66% within a kilometre. Only 2.8% of the population live over 5 km from an ATM.

A vulnerability analysis was carried out to see what changes if ATMs close. For 82% of the population the distance travelled would increase by less than 1 km if the nearest ATM closed. For 8% the distance would increase by more than 3 km, which is the arbitrarily chosen distance that the central bank regarded as defining ‘vulnerable’ areas. These areas were largely rural or communities of under 3,000 people. There was little difference between the ages, per capita incomes and access to public transport between those deemed vulnerable and not vulnerable.

Cost of accessing cash

Although the fees charged to access cash are most discussed since they discourage access or change behaviour, there are also the implicit costs of the time and effort it takes to access cash. These are felt just as keenly by people as the financial costs.

The ECB does not though, systematically collect fee data. This is a complex area because fee models can be country specific based on local legislation, their cash industry and geography. The ECB developed a methodology in 2018 and does collect some data. This methodology was not reviewed in the paper.

Access to cash protection

The paper ends with a swift review of what some European countries are doing to protect access to cash.

In 2021 Sweden introduced legislation requiring its credit institutions to ensure cash services are provided. The UK has a range of activities around post offices, new free-to-use ATMs and banking hubs. The Netherlands is working to ensure its population is within 5 km of an ATM, as are Lithuania and Latvia. Narodowy Bank Polski in Poland has set a target of 90% of the population within 10 km of an ATM.

The Eurosystem has used the Euro Retail Payment Board to work with banking, consumer and retail associations to assess access to cash and to make recommendations.

The paper concludes by noting that, in addition to bank branches and ATMs, the range of CAPs now includes mobile banks, cash back in shops (cash with a purchase) and cash in shop (cash without a purchase).

1 - Guaranteeing freedom of payment choice: access to cash in the euro area. Alejandro Zamora-Pérez. ECB Economic Bulletin 5/2022.