Netherlands: Government Plans to Legislate to Protect Cash

From Cash Covenant to Legal Intervention

In April 2022, twenty-three Dutch organisations involved in the payments system signed a Cash Covenant to ensure that cash continues to function correctly as a payment instrument in the face of a steady increase in electronic payments. The major Dutch banks, the Dutch Payments Association, representatives of consumers, retailers, the hospitality industry, petrol stations, cash services providers, and the DNB signed the agreement.

Following the signature of the Covenant, the Ministry of Finance and De Nederlandsche Bank (DNB) commissioned a study by PwC Strategy& [in Dutch] on the future system for banknote and coin deposits and withdrawals for consumers and retailers, the so-called TICKET study. Finance Minister Sigrid Kaag presented the study’s results and a letter [in Dutch] to Parliament and concluded that legal intervention is needed to ensure that cash remains usable, available, accessible and affordable for users.

Cash Services Have Deteriorated

Between 2019 and 2022, access to cash in the Netherlands has worsened the most in the euro area, just after Belgium, as per the European Central Bank’s (ECB) latest Study on the Payment Attitudes of Consumers in the Euro Area (SPACE) of December 2022. Almost 20% of respondents perceived access to cash as difficult of fairly difficult in 2022, up by 7 percentage points in 2019.

The Minister notes that cash services have deteriorated over the years as banks have shut down ATMs and branches have gone ‘cashless’. The trend was accelerated by the pooling of ATMs into the Geldmaat network. A well-functioning cash infrastructure is also very important for banks; it brings confidence to the financial system. This responsibility has been fulfilled through voluntary agreements between banks, consumer organisations and representatives of point-of-sale establishments and reconfirmed in the Cash Covenant of April 2022.

However, the Minister states that cash services cannot be provided at a socially desirable level in the longer term, based on voluntary agreements. To ensure that cash as a means of payment remains usable, available, accessible and affordable for users – even if the actual use of cash at the counter declined further in the future – a legislative framework mandating that banks offer a basic level of affordable cash services is required. Meanwhile, the DNB will enter into discussions with the participants of the Cash Covenant to ensure that access to cash services and their affordability for consumers and retailers do not further decline until the announced legislation has become applicable.

A Lower Social Cost of Cash but a Higher Cost per-Transaction

A 2022 McKinsey report highlights that the banks’ cash cost has fallen from €779 million in 2005 to 273% in 2021. However, banks continue to seek greater efficiency by shrinking the cash infrastructure or increasing fees for cash services. And as the volume of cash transactions decreases, the transaction costs increase. This is at odds with the users’ need for affordable cash services.

4 Models for the Future Cash Cycle

The TICKET study concludes that the current set-up of the cash infrastructure is not future-proof. It describes four models to ensure continued access to cash services, with a possible combination of options:

Option Zero: Voluntary agreements, as in the Cash Covenant
Option A: Introduce legal obligations about, among other things,
accessibility and quality of cash services;
Option B: Designate one party as a universal provider of cash services
Option C: Implementation of the tasks by the government.
The Minister and the DNB support option A. She argues that banks have offered cash services so far, which aligns with their social role; they are best equipped to provide the infrastructure sustainably and efficiently. Moreover, the Netherlands would join other European countries that have introduced legislation mandating access to cash.

3 Models to Fund the Cash Infrastructure

With regards to the funding of the cash infrastructure, the TICKET report identifies three options, which can also be used in combination:

Banks remain responsible for funding their costs but may not entirely pass them on via per-transaction fees to cash users. They can pass on some costs, for example, via the tariffs of payment account packages;
The costs are covered by the electronic payment system, e.g. via a surcharge per debit card transaction;
The government covers the costs.

The Minister and the DNB support option 1. Option 3 is ruled out as it would be socially undesirable for government funding to support the banking sector as cash is basic banking service. As for a surcharge on electronic payments, it would be complicated to implement and could potentially conflict with EU regulations.

A New Cash Bill in 2023

The Minister concludes that a bill on the future cash infrastructure will be prepared by the end of 2023. It will ensure that banks provide an adequate basic cash infrastructure that is available, accessible and affordable for users (both consumers and merchants). This includes a minimum infrastructure for withdrawing and depositing banknotes and coins based on the current Cash Covenant. It will also oblige the large Dutch banks to enable customers to withdraw and deposit cash via ATMs and will regulate the fees charged by bank services. To ensure that banks comply with their obligations, DNB will monitor compliance and take enforcement action where necessary.

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