Balancing Digital Payments & Access to Cash
The paperSee Banknote paper. More “Safeguarding Consumers’ Access to CashMoney in physical form such as banknotes and coins. More in the Digital Economy” delves into the complex interplay between the rapid digitalization of paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More systems and the enduring importance of cash. As societies worldwide increasingly adopt digital payments, the paper explores the potential risks and unintended consequences of this shift.
The Digitalization of Payments
The digitalization of payment systems has been driven by several factors, including cost efficiency, the COVID-19 pandemic, and efforts to combat illegal transactions. Digital payments offer benefits, such as increased convenience, broader access to financial services, and the potential for financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More, especially in developing markets. Two-thirds of adults worldwide reported using digital payments in 2022, a significant increase from 44% in 2014. This trend has been accelerated by the pandemic, which shifted consumers away from physical cash to reduce in-person contact.
Accordingly, the move towards digital payments has led to a decline in cash usage and access. The number of ATMs per 100,000 adults decreased by 13% between 2020 and 2022, and the total number of commercial bank branches per 100,000 adults decreased by over 20% in the same period. This reduction in cash infrastructure raises concerns about financial exclusion and vulnerability, particularly for those who prefer or rely on cash.
The Role of Cash in Society
Cash is a crucial payment methodSee Payment instrument. More for various segments of the population, including the elderly, lower-income groups, individuals with disabilities, immigrants, and those with lower digital literacy. These groups often face barriers to adopting digital payments.
Others prefer cash for its privacy and security benefits, particularly as cyberthreats are increasing. Cash also serves as a store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More, providing a sense of security during economic uncertainty or system failures. Cash is not just a payment method but also a tool for budgeting and financial management. For low-income households and individuals who are liquidity-constrained, cash provides a tangible way to monitor and control spending. Digital payments, on the other hand, can lead to overspending due to their psychological detachment from physical moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More.
Policy Considerations and Initiatives
To address the challenges posed by the decline in cash access, governments and regulatory bodies have implemented various policies and initiatives. These measures can be grouped into four categories:
- National Policies or Strategies: Countries like the United Kingdom, Ireland, France, and Poland have developed national strategies to ensure the resilience and accessibility of cash infrastructure. These strategies often include guidelines for maintaining cash services and ensuring the physical security of banknotes and coins.
- Enforcing the Acceptance of Cash: Several countries have enacted legislation to require businesses to accept cash. For example, Belgium, China, and Spain have passed laws mandating the acceptance of cash for transactions, with exemptions for security or technical reasons.
- Ensuring Availability and Provision of Cash: Initiatives to maintain cash infrastructure include legislative and regulatory measures, as well as industry-led efforts. Sweden, Finland, and the Netherlands have implemented regulations to ensure the availability of cash services, such as requiring banks to provide withdrawal and deposit services.
- Expanding Regulatory and Supervisory Powers: Countries have expanded the powers of oversight bodies to monitor and enforce access to cash. For instance, the Financial Conduct Authority in the United Kingdom and the Central Bank of the Netherlands have been granted additional responsibilities to oversee cash infrastructure and ensure compliance with regulations.
Table 1 provides a bold but non-exhaustive attempt to review country-level policies to safeguard access to cash.
Source: OECD
Case Studies and Examples
The paper provides several examples of countries that have implemented measures to safeguard access to cash. In the United Kingdom, the Joint Authorities Cash Strategy (JACS) Group coordinates efforts to maintain a resilient cash infrastructure. The group has developed proposals under the Financial Services and Markets Act of 2023 to protect access to cash and ensure regulatory alignment.
In Ireland, the Department of Finance has published terms of reference for a National Payments System, aiming to combat the declining cash infrastructure. France has launched an integrated governance model to create the National Payments Committee, overseeing a unified strategy for cash and cashless payments.
Australia’s government has published a strategic plan for its payments system, recognizing the importance of cash for financial inclusion. The plan includes monitoring access to cash and engaging with regulators and industries to maintain a resilient cash infrastructure.
A Need for Balanced Policies
The digitalization of payment systems offers numerous benefits, but also presents challenges. The paper emphasizes the need for balanced policies that promote digital growth while ensuring access to cash. By implementing national strategies, enforcing the acceptance of cash, ensuring its availability, and expanding regulatory powers, governments can mitigate the risks of financial exclusion and vulnerability.
As digitalization continues to evolve, further policy responses will be necessary to address the changing landscape of payment systems. The Working Party on Financial Consumer Protection, Financial Education and Financial Inclusion will continue to discuss the evolving role of digitalization in global payment systems and its implications for financial consumer protection policies.
A Step in the Right Direction
The OECD’s recognition of the importance of cash for financial inclusion, privacy protection, and as a hedge against cyber threats and economic uncertainty is a welcome step forward. By acknowledging these unique attributes of cash, the report underscores the necessity of preserving access to physical currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More even as digital payment systems expand. However, while safeguarding cash is crucial, the measures outlined in the report may not go far enough.
Given the specific and unmatched attributes of cash, simply protecting existing frameworks is insufficient. To ensure cash remains viable and sustainable in a rapidly changing economy, we must reinvent and innovate the ways in which cash is integrated into modern financial systems. This could involve enhancing cash infrastructure, promoting hybrid models that combine the benefits of cash and digital payments, and fostering policies that actively support the coexistence of both payment methods. By doing so, we can ensure that cash continues to serve as a reliable and accessible option for all segments of society.