Lloyds cash-back program too little, too late, pro-cash lobby says

Lloyds is paying small merchants to offer cash back, but consumer groups are already casting the move as inadequate to address the decline of branches and ATMs in the U.K.

The bank will pay an undisclosed fee to retailers for cash-back transactions. In partnership with Visa, the initiative will target areas of the U.K. where cash access has become harder, such as rural areas or less affluent areas.

Lloyds is not positioning the move as a substitute for ATMs or branches—instead, as the bank's press release says, the scheme is “aimed at creating more availability where access to cash” is challenging and customers will still have the choice to pay with their cards and mobile devices as they do today. "We remain an active supporter of Link's program for protected ATMs as well as their longstanding financial inclusion program," a Lloyds spokesperson said in an email.

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That’s not enough for Which?, a consumer group that has protested ATM cuts, which Link, the U.K.’s largest independent cash machine operator, has said are necessary because 80 percent of the U.K.’s 54,000 independent ATMs are within 300 meters of each other.

“I welcome this initiative, which makes sense for both consumers and small businesses. There is huge scope for innovation, not just in digital payments but also in cash,” said Natalie Ceeney, chair of the Link-funded Access to Cash Review, in an email.

ATMs are declining in the U.K., with a loss of 4,000 between 2017 and 2018, according to Link's data. The decline is in part due to the increase in contactless and mobile payments, and in part because of a reduction in fees banks pay to ATM operators. Additionally, bank branches are declining. Lloyds alone has cut more than 1,200 branches since the financial crisis, cutting off an additional cash access point.

By some estimates as many as 10,000 ATMs may disappear over the next four years. Three million people in the U.K. still rely on cash for all of their payments, Europe's ATM Association.

Which? is calling on direct government action to stem the tide of ATM losses.

"Cash-back is not an adequate substitute for ATMs or bank branches, and it's essential that communities continue to have access to their money free of charge for as long as they need it,” said Jenny Ross, Which?’s money editor. “That's why we're calling on the government to appoint a regulator with a duty to protect access to cash and ensure people have the freedom to pay in the way that they want to."

Which?’s dispute illustrates the political issues that accompany the technology revolution that has hit retail over the past few years. Mobile payment apps and contactless payments are advancing globally and make cash less necessary, but have not totally pushed paper money to the museum.

Despite India’s move to take about 85 percent of its cash out of circulation, India remains a cash-heavy economy. And in both China and the U.S, there are government moves to punish cashless stores or ban merchants from refusing cash.

Lloyds estimates that more than 50,000 merchants may qualify for the cash-back program. The fee will be set in “due course,” according to Lloyds, and initially consumers will be required to make a purchase in line with cash-back rules. Eventually, the plan is to offer cash-back without a need for a purchase. Lloyds also suggested grants may be available to merchants.

"It's right that banks are taking steps to address concerns about access to cash — but these can only attempt to solve the problem in the short-term,” Ross said. “We need to see more detail about how schemes such as this would work in practice.”

The U.K. government has intervened in ATM issues in the recent past. Mastercard in 2017 volunteered to open it’s the Link ATM network to address competition concerns the U.K. government had regarding the card network’s $982 million deal to acquire Vocalink. And Link altered its fee reduction plan in response to regulatory pressure.

“Lloyds is trying to think creatively to find a way to access cash. Cash-back has existed for years, but there has never been an incentive to do so for small merchants,” said Gareth Lodge, a senior analyst at Celent. “Small merchants are more likely to need cash, and are less able to go to the bank to get it. By paying a fee, it will incentivize or at least compensate the merchant for doing cashback.”

Government action will also be complicated, according to Lodge. “I expect something that will attempt to ensure customers have some minimum rights over access and service levels. The question then becomes complicated — what about the new banks that neither have branches or ATMs?”