War on Cash: UK Cash Deserts
By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
Quartz this week reported in Scotland is on the front line in the fight against “cash deserts” on an active battleground in the ongoing war on cash : the increase in the UK of ‘cash deserts ‘ – areas that banks have decided not to serve, so that those who need cash, and wish to withdraw it from their bank accounts, cannot do so.
The UK is on the frontline of the war on cash, with branches being shuttered and banks seeking to convince customers they should embrace lower-cost apps. Over to Quartz:
An average of 460 cash machines vanished every month in 2018, and the country has fewer than 8,000 bank branches now, down from nearly 18,000 in 1989. Around 1,500 previously banked towns no longer have one.
The angst in these villages and towns shows that a swath of people can’t, or don’t want to, leave the analog world behind, even as the number of ways to manage money online is exploding. And they have a point: Research shows that online finance isn’t yet a full replacement for its physical predecessor. Banks like RBS, Lloyds, and Barclays, meanwhile, are under pressure from impatient shareholders to cut costs, as digital rivals brag about their lack of costly physical branch networks.
In banks’ eagerness to embrace more profitable digital alternatives, they are scrapping branches and ATMs faster than society is ready for. As they retreat, the UK is becoming a laboratory for what the rest of the developed world can expect as financial apps rise and storefronts get boarded up [Jerri-Lynn here: my emphasis].
The cash desert problem isn’t limited to Scotland, as the Telegraph reports in Over 100 rural areas in the UK are ‘cash point deserts’ without a single ATM:
More than 100 rural areas in the UK are “cash point deserts” without a single ATM, research shows for the first time.
The study by consumer watchdog Which? found a total of 123 postcode districts with a combined population of 110,935 people did not appear to contain a single ATM.
A further 116 postcode districts appear to have just one ATM, 37 of which charge a fee. In total there are around 2,900 postcode districts in the UK.
The BBC reports separately earlier this month that deprived areas are losing ATMs at a higher rate than are affluent areas, according to a study by the University of Bristol:
Researchers found two-thirds of the city’s cash machines that began charging between October 2018 and March 2019 were in poorer neighbourhoods.
Dr Daniel Tischer warned “cash deserts” were being created which further marginalised poor areas.
The team added policymakers had to take the most vulnerable into account.
The study showed bank branches and free cashpoints were concentrated in areas of economic activity, such as the affluent neighbourhood of Clifton.
Cash machines in more deprived areas tended to be owned by companies that increasingly charge people to withdraw money. [Jerri-Lynn here: my emphasis.]
To expand further on the research, according to a University of Bristol press release, As cash declines, research shows the most deprived communities are left behind :
New research from the University of Bristol’s Personal Finance Research Centre shows deprived neighbourhoods, often those where people are most likely to rely on cash, are rapidly witnessing the disappearance of their free cashpoints.
The study mapped the cash infrastructure within Bristol – one of the UK’s largest and wealthiest cities, which also has areas with some of the highest levels of deprivation in the country.
Now, I should note, that banks can point to economic factors that determine their decisions not to site and maintain ATMs in certain areas, thus creating cash deserts. To site an ATM requires a bank to incur $25-50,000 in capital costs – with the total amount depending on the sophistication of the machine. Most operators depreciate them over 5 years and run them for 7 meaning they they get two “free” years out of them in terms of hardware costs. This means they spend $5-10,000 each year to cover that aspect.
But the real hit to run an ATM is in maintenance. It’s necessary, at minimum, to replenish the ATM weekly, so that customers won’t find a machine has run out of cash when they visit it. Nor do banks want to lock up huge cash balances in these machines: that would mean they both incur a too-high cost-of-cash hit and that the ATM might pose a tempting target for thieves.
Usually, the maintenance and management cost is at least equivalent to the capital cost. In really remote places, that management and maintenance cost is obviously higher because it’s a longer trip to load it with cash, do the balancing, do housekeeping jobs like cleaning and sorting out note jams, retained cards etc.
If an ATM is only doing a few hundred dispenses per week, the cost per transaction ends up very steep. Far more than can be clawed back from the card issuer banks.
The bottom line is that it costs money to site and maintain an ATM, and the cost curve is only going to get worse over time. Meaning that not only is there an economic rationale for banks to ignore the reality of ATM-free cash desserts, but that the problem isn’t going away anytime soon, and will only worsen.
The Bottom Line
In the UK at least, the cash deserts problem looks like it will only expand, as the economics argue against siting and maintaining ATMS in certain areas, and customers alone are unable to convince their banks to do otherwise.
Where are the regulators?