Access to Cash in Canada

For countries experiencing ‘less cash’, it is becoming normal to measure the distance people must travel to access cash from an ATM, or in Canada’s case and automated banking machine (ABM), or branch of a financial institution. The Bank of Canada has released a paper describing its travel- based metric and the results ¹.

The average Canadian must travel 2 km to reach their nearest ABM and 4.5 km to their nearest branch. 90% of Canadians live within 5 km of an ABM, and 84% live within 5 km of a branch.

The total number of ABMs in Canada increased by 3.7% between 2019 and 2022, and overall access to cash remained stable in that period. At the same time, the cash share of transactions in Canada (by volume) has decreased, from 33% in 2017 to 22% in 2021. While not necessarily related to this, the total number of branches decreased by 5.2%, mainly in rural areas where the decline was 7.2%. Rural Canadians already have less access to cash: they need to drive an average distance of 4 km to the nearest ABM and 9.6 km to the nearest branch, each distance twice the national average.

Given the risk to access to cash in rural areas, the Bank carried out further research. Since many of these rural closures occurred in census subdivisions (CSDs) that lost their last branch, the Bank carried out a risk analysis which assumed that any CSD with only one ABM or branch then lost its last ABM or branch.

Of the 5,162 CSDs in Canada, 628 had only one remaining ABM in 2022, with 623 of these in rural areas. 931 had only one branch, with 877 of these in rural areas.

Results show that rural Canadians would suffer the largest negative impacts from losing their last branch: their travel distances would almost double from the current 9.6 km to the counterfactual 17.6 km. The Bank will continue monitoring the evolving branch dynamics in rural areas.

Why are ABM numbers rising?

The paper identifies the fee structure of the ABM industry in Canada as a possible explanation for why Canada’s ABM numbers are rising when transactional cash use is falling.

Three types of fees can result when a consumer withdraws cash from an ABM:

• Consumers might pay a direct fee to the ABM owner for using the ABM. This is known as the surcharge fee.

• A bank may pay the ABM owner if one of the bank’s customers uses an ABM that the bank does not own, known as the interchange fee.

• Consumers might pay a ‘foreign fee’ to their own bank if they withdraw cash from an ABM that their bank does not own.

Canada, however, allows all three fees when a consumer makes a withdrawal at an ABM not owned by that consumer’s financial institution. So, for an ABM transaction, a consumer could pay both the surcharge fee and a ‘foreign fee’. An ABM owner could receive revenue from both the consumer (surcharge fee) and the consumer’s bank (interchange fee).

With a surcharge fee, both financial institutions and independent ABM deployers are incentivised to deploy more ABMs because they can recover more of the ABM’s operating cost.

Allowing ‘foreign fees’ prompts financial institutions to install more ABMs. A significant ABM fleet supports the acquisition and retention of customers, who benefit from the convenience of a larger ABM network and the ability to avoid paying ‘foreign fees’. In addition, with a larger ABM fleet, a financial institution can generate more interchange fee revenue from the customers of other financial institutions, who benefit from that larger ABM fleet. This makes investment in ABM networks a means to attract potential customers.

Further, competition between financial institutions drives the installation of multi- functional ABMs that provide a range of services. So, despite the fees associated with using ABMs, consumers could benefit because the larger number of more sophisticated ABMs incentivised by the fee structure improves convenience and reduces the cost of travelling to access cash. Overall, this can improve and help sustain access to cash.

What has happened to bank branches?

Canada’s decrease in financial institution branches is smaller than in similar countries, such as Australia, where the number of branches dropped by almost 30% in five years, from 2017 to 2022.

This difference might be related to the fact that in some countries post offices play a role in providing basic banking services. But unlike in Australia and the United Kingdom, post offices in Canada do not provide cash or basic banking services; households that want basic in-person financial services are served at their financial institution branch. This may help explain the smaller drop in branch numbers.

Final word

While the paper suggests access to cash is stable in Canada, it also highlights risks both to the last ABM closing in rural areas and the dependence of citizens on financial institutions to access cash services.

The ABM fee structure appears critical to maintaining cash infrastructure, but the risk of lower fee income or financial institutions moving away from providing cash services in branches must be significant.

1 - How Far Do Canadians Need to Travel to Access Cash? (bankofcanada.ca).